There is good news for the 850,000 homebuyers and homeowners with new FHA-insured mortgages. FHA recently announced a reduction in its annual mortgage insurance premium (MIP). The plan will cut mortgage insurance costs by 30% for buyers who take out Federal Housing Administration-backed mortgage loans, from 85% to 55% for most new borrowers.
The reduction could save 850,000 homebuyers and homeowners an average of $800 this year, according to a recent announcement.
The discount takes effect on March 20.
The savings could be felt by first-time and repeat homebuyers who bought their home with less than a 20% down payment. Rule-of-thumb guidelines have long held that homebuyers should save 20% of the purchase price of a home to use as a down payment. But the 20% down rule is no longer so hard and fast for many homebuyers, especially as real estate values climbed steeply during the pandemic years.
The solution to higher home prices for many was to shortcut the down payment and put down less than 20% on their home purchase. The typical down payment for first-time buyers was six percent, while the typical down payment for repeat buyers was 17%, according to the 2022 Profile of Home Buyers and Sellers recently released by the National Association of Realtors® (NAR).
Those who buy their home with less than 20% down are required to purchase mortgage insurance, which also requires getting a Federal Housing Authority or FHA-insured mortgage. The MIP is the monthly fee that homeowners with FHA-insured mortgages pay to insure their mortgages, which is paid in addition to the monthly principal and interest payments.
Even as home prices soared in recent years, homeownership remains the American Dream — the goal many aspire to achieve. The status stems from the continued place of homeownership as the principal source of wealth creation for most American households.
The nationwide shortfall of affordable homes and increased demand for housing fueled by changing lifestyles from the pandemic has moved the goalpost significantly for many homebuyers. Today’s announcement is an important step in making homeownership more attainable, according to the announcement from the Department of Housing and Urban Development (HUD). FHA-insured mortgages, which accounted for 7.5% of home sales in the third quarter of 2022, are targeted at homebuyers who otherwise may not be able to achieve homeownership. This cost-lowering measure will make buying a home more attainable and affordable for more low- and middle-income borrowers, HUD reports.
HUD statistics show that over 80% of FHA borrowers are first-time homebuyers, and over 25% are homebuyers of color. The average home purchased with FHA-insured mortgages costs around half the price of the overall national median home and has an average mortgage amount of less than $270,000.
In addition, FHA’s underwriting policies will now allow positive rental history to be included in a lender’s evaluation of an applicant’s creditworthiness for an FHA-insured mortgage, which should make it easier for first-time homebuyers to qualify.
Read the full announcement at www.hud.gov/press/press_releases_media_advisories/hud_no_23_041.
Tom Kalinski is the broker/owner of RE/MAX of Boulder, the local residential real estate company he established in 1977. He was inducted into Boulder County’s Business Hall of Fame in 2016 and has a 40-year background in commercial and residential real estate. For questions, email
Tom at tom[email protected], call 303.441.5620, or visit boulderco.com.