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by: Manny & Michelle Huertas
The Federal Housing Administration (FHA) has lowered its mortgage-insurance premium (MPI) by 30 basis points, resulting in a monthly savings of $117 for borrowers of a $467.7K home with a 3.5% down payment.
- What is MPI? The mortgage insurance premium is a fee charged to FHA borrowers to offset the foreclosure risk.
- Why the change? FHA reported an 11% capital reserve ratio in their 2022 annual report to Congress, which is 9% above the required 2%. This allows the agency to lower the premium for borrowers in the future.
- How many borrowers will benefit? The reduction will benefit about 850,000 borrowers over the coming year, saving them $678 million overall. The average borrower purchasing a one-unit, single-family home means a savings of more than $1,400 per year ($117 per month), assuming a 3.5% down payment and a national median home price of $467,700.
- Who will benefit the most? According to the agency, FHA loan borrowers who buy homes toward the lower end of the price range will likely see savings in the $800 per year ($67 per month).
What are people saying? The National Association of Realtors (NAR) and other housing organizations have advocated for a lower MPI, and NAR President Kenny Parcell applauded the administration's action. "This reduction will help alleviate some of the financial stress those potential buyers encounter when purchasing a home and allow more people across the country to achieve the American Dream of homeownership," he said.
In conclusion, the FHA's recent reduction of mortgage-insurance premiums is good news for borrowers, particularly those purchasing homes at the lower price range. The move will benefit hundreds of thousands over the next year and save them hundreds of millions.