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On February 1st, 2023, the Federal Housing Administration (FHA) announced a decrease in the annual mortgage insurance premium (MIP) for certain FHA-insured mortgages. This is great news for homebuyers, as it will lower their monthly mortgage payments and make homeownership more affordable.

The MIP is a fee that borrowers pay to the FHA to protect lenders in case the borrower defaults on their loan. The MIP is typically calculated as a percentage of the loan amount and is paid annually in monthly installments. The amount of the MIP varies depending on the down payment and the term of the mortgage.

Under the new policy, the annual MIP for FHA-insured mortgages with a down payment of 3.5 % will decrease from 0.85 % to 0.55 % This is a significant reduction that will result in lower monthly mortgage payments for borrowers who qualify for an FHA loan. For example, a borrower with a $200,000 FHA loan with a 30-year term and an interest rate of 6.0% would save approximately $900 per year or $75 per month in MIP payments under the new policy.

Borrowers who already have an FHA-insured mortgage will not be eligible for the reduced MIP rate. However, borrowers who refinance their existing FHA-insured mortgage into a new FHA-insured mortgage that meets the above criteria may be eligible for the reduced MIP rate.

It's important to note that while the reduction in the MIP rate is good news for homebuyers, it does not change the other requirements for FHA loans, such as credit score and debt-to-income ratio.