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- The HUD is cutting annual mortgage insurance premiums on FHA mortgages from 0.85% to 0.55% for most new borrowers.
- This change will save FHA borrowers an average of $800 per year, according to the White House.
- The new FHA mortgage insurance rates are set to go into effect on March 20.
FHA mortgages have long provided first-time homebuyers and those with less-than-stellar credit an affordable way to achieve homeownership. But one of the main drawbacks of these mortgages has been that their mortgage insurance costs are relatively high.
FHA mortgage borrowers will pay 1.75% of their loan amount in upfront mortgage insurance costs, and they typically also pay an 0.85% annual premium, which is added to their monthly mortgage payment. But in March, FHA borrowers will be able to take advantage of lower annual mortgage insurance rates.
Borrowers will now pay less for FHA mortgage insurance
The White House announced Wednesday that the US Department of Housing and Urban Development (HUD) will lower annual mortgage insurance premiums (MIP) on FHA mortgages, which are insured by HUD's Federal Housing Administration.
"For this country to truly succeed, all Americans must have access to opportunity. That means expanding access to wealth-building and home ownership," HUD Secretary Marcia L. Fudge said in a press release. "Today, we are building on the steps we've taken to make homeownership more affordable, and HUD is acting to ensure people feel comfortable purchasing a home as they build toward their future. As we reduce housing costs for people with FHA mortgages, we continue our work to address longstanding disparities in homeownership."
This change was made possible by the fact that the FHA's mortgage insurance fund has more than five time the reserves required by Congress, the White House fact sheet said.
Overview of the annual MIP changes
The annual MIP is paid as a percentage of the borrower's loan amount, and how much an individual pays depends on how much they borrowed, their down payment, and the loan term. Currently, most borrowers pay an annual MIP rate of 0.85%.
When the reduced MIP rates go into effect on March 20, borrowers of new FHA mortgages will have access to the new annual MIP rates. The typical borrower will pay 0.55% of their loan amount annually in mortgage insurance costs.
With this lower rate, homebuyers with new FHA mortgages will be able to save an average of $800 per year, according to the White House fact sheet.
New FHA MIP chart
These lower annual MIP rates will be available to those getting a new FHA mortgage on or after March 20, 2023. Here's what you can expect to pay based on your term length, loan amount, and loan-to-value ratio (LTV), according to HUD.
For mortgage terms greater than 15 years
| Loan amount | LTV | Annual MIP rate |
| $726,200 or less | 90% or below | 0.50% |
| $726,200 or less | Above 90% but less than or equal to 95% | 0.50% |
| $726,200 or less | Above 95% | 0.55% |
| More than $726,200 | 90% or below | 0.70% |
| More than $726,200 | Above 90% but less than or equal to 95% | 0.70% |
| More than $726,200 | Above 95% | 0.75% |
For mortgage terms of 15 years or less
| Loan amount | LTV | Annual MIP rate |
| $726,200 or less | 90% or below | 0.15% |
| $726,200 or less | Above 90% | 0.40% |
| More than $726,200 | 78% or less | 0.15% |
| More than $726,200 | Above 78% but less than or equal to 90% | 0.40% |
| More than $726,200 | Above 90% | 0.65% |
How these changes help low-income homebuyers and borrowers of color
Nearly 84% of FHA mortgage borrowers are first-time homebuyers, and 43% of FHA borrowers are low income, according to HUD. Additionally, more than 25% are borrowers of color, the White House fact sheet said.
By reducing the costs associated with getting an FHA mortgage, HUD aims to make homeownership more affordable for historically underserved communities, who often don't have the same access to the intergenerational wealth-building that can make homeownership possible.
"The announcement to lower the mortgage insurance premium by the Federal Housing Administration is a commendable step by the federal government towards advancing homeownership in our low-to-moderate income communities," says Tai Christensen, chief diversity officer of Arrive Home, which provides down payment assistance to low-to-moderate income borrowers.
Christensen says the HUD changes combined with other initiatives like down payment assistance can help underserved borrowers more easily achieve homeownership.
"While this is a positive step in the right direction, I believe there is still more to be done to advance homeownership in underserved communities," she says.
How much you could save
Depending on how much they're borrowing, homebuyers could potentially save more than $100 per month on their mortgage payment with these new MIP rates.
With a 3.5% down payment on a median-priced home, a borrower would need a loan of $451,330. With an annual MIP of 0.55%, they'd pay $2,482 each year on FHA mortgage insurance, or around $207 every month. With the old MIP of 0.85%, that same borrower would have paid $3,836 annually, or $320 per month. This means that the new MIP rates could reduce a borrower's monthly mortgage payment by $113.
What is FHA MIP?
The FHA's mortgage insurance premium is how HUD funds the FHA mortgage program. When getting an FHA mortgage, borrowers pay both an upfront and annual mortgage insurance fee.
The FHA provides insurance to lenders in the event that a borrower stops paying their mortgage. Because lenders have some financial protection from borrower default, they're able to offer mortgages to borrowers with lower credit scores or smaller down payments.