BAM Key Details:
- The Biden-Harris administration has announced action to save homebuyers and homeowners with FHA-insured mortgages $800 per year by reducing mortgage insurance premiums.
Homebuyers and homeowners with FHA-insured mortgages will soon save an average of $800 per year on mortgage insurance premiums.
Vice President Harris and Department of Housing and Urban Development Secretary Fudge announced today that HUD, through the Federal Housing Administration (FHA), will reduce its annual mortgage insurance premium by 0.30%, from 0.85% to 0.55%, for an estimated 850,000 borrowers in 2023.
What does a reduction in MIP mean for home buyers?
The mortgage insurance premium is the fee homeowners with FHA loans pay every month—in addition to their monthly principal and interest payments—to insure their mortgages.
During a time when affordability and high mortgage rates are keeping more people renting, this move could bring some relief to those eager to buy a home.
In an email statement to BAM, Greg Schwartz, CEO of Tomo Mortgage, shared his thoughts on the action:
Bringing down the hard fees and costs to buying homes will allow millions of Americans to build wealth and prosperity through home ownership. This is the American Dream in action. Combining this action by the administration with Tomo not charging lender fees, we’ll get more folks in homes.
Why is this a big deal?
With the recent release of the Renters Bill of Rights, this latest move by the Biden-Harris Administration shows their concerns over increased housing costs aren’t limited to renting.
Here’s how the National Association of Realtors (NAR) described the move in an official statement:
FHA’s announcement strikes an appropriate balance between assisting homeowners and ensuring the capital reserve ratio and insurance fund remain strong. NAR has continuously advocated for responsibly reducing mortgage insurance premiums to help qualified home buyers struggling with affordability in the current environment, and we applaud the Administration for this action. Mortgage rates have doubled over the past year, and home prices have increased more than 30 percent in some counties. In this competitive market, new and low- to moderate-income buyers are often left behind. This reduction will help alleviate some of the financial stress those potential buyers encounter when purchasing a home and allow more people across the country to achieve the American Dream of homeownership.
With the nationwide shortage in the supply of affordable homes, first-time home buyers have struggled in the past few years to become homeowners.
First-generation home buyers and first-time home buyers of color have been disproportionately affected because, due to a longstanding and significant gap in intergenerational wealth transfers, they’re less likely to have sufficient savings for a sizable down payment.
“It’s great to see leadership at HUD doing what they can to help make homeownership more affordable for more buyers,” Brian Skelly, Vice President, Mortgage Banker at William Raveis Mortgage, told BAM. “FHA is a great program, but sometimes the monthly mortgage insurance can be a turnoff. This will help keep payments a bit lower, which in the face of rising rates and higher home prices, every bit helps!”
The action announced today is a step toward making homeownership more accessible, despite ongoing affordability challenges.
Who benefits most from FHA-insured mortgages?
FHA-insured mortgages, designed to help many home buyers who would typically be excluded from conventional mortgages, accounted for 7.5% of home purchases in Q3 2022.
This cost-lowering measure will help reduce annual homeownership costs and make buying a home more affordable for more low- and middle-income home buyers.
The FHA insures home loans with a smaller down payment and more flexible underwriting, making it possible for more buyers to begin building generational wealth through homeownership earlier than their finances might otherwise allow them to.
It opens the door to credit-worthy borrowers while allowing for a lower minimum credit rating than is typically required for a conventional mortgage loan.
More than 8 out of 10 FHA borrowers are first-time home buyers. More than a quarter of them are home buyers of color.
The typical home purchased with an FHA mortgage costs roughly half the national median home price and has an average mortgage amount of under $270,000.
As the latest measure to bring relief to new home buyers and homeowners, the premium reduction will take effect on March 20, 2023.
Top takeaways for real estate agents
Keep a copy of the full fact sheet to share with any clients or prospects who could benefit from the information on HUD and FHA changes that impact low- and middle-income borrowers.
Whatever information that can help your buyer clients become homeowners is worth keeping handy. Consider sharing this information with your audience on social media to get the word out.
For home buyers who can’t afford to wait much longer for a larger home, this could get them in the door more quickly—and help them save a substantial amount of money every year.