What Those Mortgage Insurance Premium Cuts Mean for You

On February 22, 2023, the US Department of Housing and Urban Development (HUD) announced a 30-basis point reduction on mortgage insurance premiums for most new loans insured by the Federal Housing Administration (FHA). This is pretty significant news in the mortgage world - but what does it actually mean for new homebuyers like you? Let’s take a look.

What Are Mortgage Insurance Premiums Anyway?

Mortgage insurance premiums, or MIPs, are paid by homeowners who take out loans backed by the FHA. The premiums are calculated annually as a percentage of the outstanding loan balance, meaning that MIPs are highest at the beginning of the loan term and gradually taper as the loan is paid off.

The MIP rates themselves are measured in “basis points,” or units equal to one hundredth of a percent of the loan balance. So, an MIP of 80 basis points is equal to 0.8% of the borrower’s current remaining loan balance.

Why Were FHA MIPs Cut?

MIPs on FHA loans have remained steady since 2015, so why are they changing now? The short answer is that cutting these rates makes homeownership more affordable, especially for lower-income and first-time buyers. Reduced MIPs also help make homeownership more accessible to historically underrepresented groups.

The cuts are part of a larger initiative by HUD to expand homebuying opportunities across the country. Other recent actions include changing how student loan debt is evaluated in FHA mortgage underwriting so that more borrowers with student loan debt can qualify for FHA loans and improving processes for eliminating ethnic and racial bias in home valuations.

How Will MIP Cuts Impact You?

The new MIP rates will take effect on March 20, 2023, and will apply to almost all Single Family Title II forward mortgages insured by the FHA. They will also apply to all eligible property types, loan-to-value ratios, and base loan amounts. All of which is to say, if you are purchasing a home or refinancing an existing mortgage utilizing FHA financing, you will likely be eligible for the new MIP rates. Your Security First Financial Loan Originator can help you sort out the details.

But how much money will a 30-point MIP reduction really save you? Well, it depends on the size of your loan. A borrower with a mortgage of $300,000 will save $900 this year alone—money that can now be put toward home improvements, recreation, college funds or even paying down the loan.

If you are a first-time homebuyer, MIP reductions are just one of many benefits you can take advantage of in order to get into a home of your own. Get in touch with Security First Financial to start exploring your home financing options.