Housing and Urban Development (HUD) on Feb 22, 2023, announced the reduction in the annual mortgage insurance premium on Federal Housing Administration (FHA) insured loans by 30-basis points. The premium will be reduced from 0.85 percent to 0.55 percent for most homebuyers seeking an FHA-insured mortgage, which could mean an estimated savings of $678 million for American families in aggregate by the end of 2023 alone. This is expected to help increase homeownership opportunities throughout California, especially for first-time homebuyers and working Californians who rely on FHA financing.
The FHA’s premiums and reserves have been very high for many years, which many believed was necessary due to the pandemic; however, now that the COVID crisis is waning, reducing the FHA mortgage insurance premium is the right decision.
In 2022, California originated the third highest number of FHA loans in the nation. Last year, one in 10 California homebuyers used an FHA loan, and 16 percent of first-time buyers in the state purchased their home with an FHA loan. Additionally, more than one in five Black and Hispanic/Latino homebuyers (first-time and repeat buyers) used an FHA loan in 2022 to purchase a California home. Therefore, the reduction in the premium will result in tens of thousands of California homebuyers saving money when purchasing a home.
The average FHA borrower purchasing a one-unit single family home with a $265,000 mortgage will save approximately $800 this year as a result of FHA’s premium reduction. For the same borrower with a mortgage of $467,700 – the national median home price as of December 2022 – FHA’s annual MIP reduction will save them more than $1,400 in the first year of their mortgage. In addition to providing overall savings to borrowers, a lower annual MIP can also help more people qualify for a mortgage. In total, this action will help low- and moderate-income Americans save an estimated $600 million in the next year alone, and many billions over the next decade.
Lets connect if you are looking to purchase your home or simply want to discuss this changing rate environment and how it affects your specific situation.
