In the complicated world of home mortgages FHA loans are generally associated with first time buyers, or folks who are trying to repair their credit rating. Private banks tend to shy away from working with such homeowners. They’re considered too big of a risk, and so the federal government steps in- F.H.A. stands for Federal Housing Authority.
But there’s a catch. In order to get a loan backed by Uncle Sam it’s going to cost more than a conventional loan. The US Government charges you a mortgage insurance premium (or MIP.) It’s like the government is saying “We believe in you, but we want to protect ourselves in case you default.”
“FHA can be a great option for some buyers,” said Scott Saxton of Just For Buyers Realty. “It’s a great tool because it gets folks into the housing market, but it could add a couple of hundred dollars to your monthly payment.
That added amount is what’s about to be reduced.
Last month the Biden Administration announced that it will be reducing the MIP rate from .85% of the purchase price of your home down to.55%. Here is how that change could impact your monthly payments
|Loan Amount||Under Old MIP Rate||Under New Mip Rate||Savings|
|$150,000||$125 per month||$82.50 per month||$42.50 per month|
|$200,000||$170 per month||$110 per month||$60 per month|
|$250,000||$212.50||$137.50||$75 per month|
The reduction will benefit an estimated 850,000 borrowers, with the typical family saving $800 annually.
“For this country to truly succeed, all Americans must have access to opportunity. That means expanding access to wealth-building and home ownership,” said HUD Secretary Marcia L. Fudge. “Today, we are building on the steps we’ve taken to make homeownership more affordable, and HUD is acting to ensure people feel comfortable purchasing a home as they build toward their future. As we reduce housing costs for people with FHA mortgages, we continue our work to address longstanding disparities in homeownership.”
Homeowners already with an FHA will see the reduction in their monthly statements automatically.