FHA loans will become more desirable and affordable. The US Department of Housing and Urban Development (HUD) announced today that it would provide lower monthly mortgage insurance premiums on Federal Housing Administration (FHA) loans. This move is aimed at helping more Americans achieve homeownership by making it more affordable.
FHA loans are popular among first-time homebuyers and low-to-moderate-credit score families because they require a lower down payment and have more lenient credit requirements than conventional loans. However, FHA loans also require borrowers to pay mortgage insurance premiums (MIP) which can add to the overall cost of the loan. Compared to a conventional loan, borrowers with credit scores of 720 or higher would have much higher MIP using FHA. Conventional loans become more expensive with lower credit scores by significant margins. FHA loans typically have little variation unless you go below 620 credit.
Under the new HUD policy, borrowers who take out FHA loans on or after March 20th, 2023, will benefit from lower monthly MIP rates. For example, borrowers with a 3.5% down payment and a 30-year fixed-rate mortgage will see their MIP rates decrease from 0.85% to 0.55%, a reduction of over 25%.
This change is expected to help around 1.4 million borrowers save an average of $900 annually on mortgage payments. For borrowers with larger loans, the savings are much more significant. For example, a $600,000 loan is now $150p/mo cheaper. This extra money could go towards home improvements, savings, or retirement.
HUD Secretary Marcia Fudge said, “This reduction will significantly help homeownership affordability for first-time and low-to-moderate-income borrowers, and we’re proud to make it happen.”
The lower monthly mortgage insurance premiums announced by HUD today will make it easier and more affordable for Americans to achieve their dream of homeownership. If you are considering purchasing a home, an FHA loan may be an option worth exploring, especially with these new changes set to take effect in just a few weeks.
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