UPDATE January 20, 2016: HUD has suspended the reduction to FHA mortgage insurance effective immediately.
HUD has announced today that mortgage insurance will be reduced on most FHA mortgages. FHA mortgages have two types of “mortgage insurance” the borrowers pay regardless of loan to value. There is the upfront mortgage insurance (currently 1.75% of the loan amount) that is typically added to the base loan amount and financed over the life of the loan and there is the annual mortgage insurance that is actually paid as part of the monthly mortgage payment. This reduction of 25 basis points is on the annual mortgage insurance premium.
As the nation’s housing market continues to improve, U.S. Housing and Urban Development Secretary Julián Castro today announced the Federal Housing Administration (FHA) will reduce the annual premiums most borrowers will pay by a quarter of a percent. FHA’s new premium rates are projected to save new FHA-insured homeowners an average of $500 this year.
FHA is reducing its annual mortgage insurance premium (MIP) by 25 basis points for most new mortgages with a closing/disbursement date on or after January 27, 2017….
Secretary Castro said FHA’s action reflects today’s risk environment and comes at the right time for consumers who are facing higher credit costs as mortgage interest rates are increasing.
If you have an FHA mortgage that’s set to close in January, you may want to check with your lender to see if it can be delayed to on or after January 27, 2017 so that you can have the reduced mortgage insurance premium.
Here’s how FHA’s new reduced mortgage insurance premiums pencil out:
From HUD Mortgagee Letter 2017-01
Unlike private mortgage insurance, FHA’s annual mortgage insurance will not drop off when or if your home reaches twenty percent equity. Only FHA mortgages with a loan to value of 90% or less at the time the loan was originated will see the annual mortgage insurance premium drop off after 11 years. Of course, a home owner can always refinance their FHA mortgage to a conventional mortgage should they want to eliminate the mortgage insurance.
The reduction in FHA mortgage insurance makes an FHA mortgage more competitive with conventional mortgages offering low down payment options, like Fannie Mae’s Home Ready or Freddie Mac’s Home Possible.
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