Update on FHA Mortgage Insurance Premium (MIP) Reduction
In an effort to make owning a home more affordable, the Federal Housing Administration will dramatically cut the costs associated with FHA mortgages it backs.
As a result, a typical first-time homebuyer could save $900 a year on their mortgage payments. Existing homeowners who refinance into an FHA loan will see similar savings.
“Too many creditworthy families who can afford — and want to purchase — a home are shut out of homeownership opportunities due to today’s tight lending market,” the White House said.
The White House estimates that the lower premiums will enable up to 250,000 new buyers to purchase a home.
According to the executive order announced last week FHA will almost immediately cut .5 percent from the annual premium for the FHA backed loans with terms greater than 15yrs. For most FHA loans this will reduce the annual premium from 1.35 percent of the loan balance to .85 percent. Loans with balances above the loan limits in effect in most areas and with current MIP of 1.50 to 1.55 percent will see new premiums of 1.00 or 1.05 percent respectively. The upfront premium for all loans will remain unchanged at 1.75 percent.
Borrowers with FHA Case Numbers issued on or after January 26 2015 will be eligible for the new lower MIP rates. However borrowers already in process of getting their FHA loan should request the lenders cancel their case numbers. Lenders will temporarily be allowed to cancel Case Numbers issued before that date.
Key points:
1) MIP Reduction applies to FHA loans greater than 15 years .
2) Borrowers with FHA-insured loans can refinance and obtain the lower annual MIP, as long as the original endorsement was after May 31, 2009
3) Lenders can cancel loans in process so borrowers can obtain new lower annual MIP.
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