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    On Wednesday February 22, 2023, the Department of Housing and Urban Development (HUD) announced a decrease in the required mortgage insurance premium (MIP) on Federal Housing Administration (FHA) loans by 30 basis points. If you’re one of the many people considering buying a home with an FHA loan, this could mean you will save hundreds of dollars per year on housing costs and thousands over the life of your loan.

    What does this mean?

    To understand the impact of this decision, it’s important to first understand the role of MIP in FHA loans. MIP is the insurance premium paid by borrowers to protect lenders against losses in the event of borrower default. Currently, FHA borrowers pay an upfront MIP, which is typically 1.75% of the loan amount, as well as an annual MIP, which is calculated as a percentage of the loan amount and is paid over the life of the loan.

    A decrease of 30 basis points in the required MIP would translate to a reduction in the annual MIP rate, which was previously between 0.45% and 1.05% depending on the loan term, loan amount, and loan-to-value ratio (LTV). According to the HUD release, most borrowers will see their fee reduced to 0.55% from 0.85%.

    So, what would be the potential impact of this reduction on FHA borrowers and the housing market?

    For FHA borrowers, this means the potential for significantly lower monthly payments. The new rate will save borrowers $300 per year for every $100,000 borrowed – so a family borrowing $300,000, only slightly above the national average for FHA loans of $270,000, would save $900 per year on mortgage insurance.

    A decrease in the required MIP should also help make FHA loans more accessible to first-time homebuyers and low- to moderate-income borrowers, who may be deterred by the upfront and ongoing costs of MIPs. This, in turn, could stimulate demand for housing and help more people achieve the dream of homeownership. According to the HUD release, more than 80% of FHA borrowers are first-time homebuyers and over 25% are homebuyers of color.

    We can help!

    At Embrace Home Loans, we’re here to help you at every step of the process – from understanding how much you can afford to spend on a home to selecting the best mortgage product for your unique situation. In fact, finding the right loan for you is the only thing we do. Reach out to an Embrace expert today to understand how this change could get you into your dream home sooner than you thought. 


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