FHA lowered its mortgage-insurance premium for borrowers by 30 basis points. The $117 monthly savings is based on a $467.7K home with 3.5% down.
The Federal Housing Administration (FHA) has reduced mortgage insurance premiums (MPI). The MPI, a fee charged to FHA borrowers primarily to compensate for foreclosure risk, was cut by 30 basis points. It announces changes to mortgage deed 2023-05.
MPI money goes into the FHA's capital reserve, and under federal law the capital reserve rate is 2%. But in its 2022 report to Congress, the FHA reported a capital reserve ratio of 11%, 9% higher than required. This allows the FHA to lower premiums for future borrowers. The reduction will benefit about 850,000 borrowers next year, saving them a total of $678 million, the FHA says. For the average borrower purchasing a single-unit single-family home, this translates to more than $1,400 in savings per year ($117 per month), assuming a 3.5% down payment and a national median home price of $467,700. However, borrowers with FHA loans typically buy homes in the lower price range, and FHA says its average borrower can save $800 a year ($67 a month).
The National Association of Realtors (NAR) and other housing groups have pushed for a lower CPI, and their advocacy will intensify in 2022 as mortgage rates begin to rise sharply. "FHA's announcement strikes the right balance between helping homeowners while ensuring that capital reserve ratios and insurance funds remain strong," said NAR President Kenny Parcells. "We congratulate the administration for this action. In this competitive market, young and low- and middle-income buyers are often left behind. This reduction will help alleviate the financial stress potential buyers face when purchasing a home and bring the American dream of home ownership to more people across the country. "
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