The Federal Housing Administration has recently reduced mortgage insurance premiums, allowing existing and new home buyers to save up to $500 per year. This reduction has lowered the annual premiums paid by most homebuyers by a quarter of a percent. This decision was made in the light of higher interest costs as mortgage interest rates increase.
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"After four straight years of growth and with sufficient reserves on hand to meet future claims, it's time for FHA to pass along some modest savings to working families," said Julian Castro, U.S. Housing and Urban Development Secretary. "This is a fiscally responsible measure to price our mortgage insurance in a way that protects our insurance fund while preserving the dream of homeownership for credit-qualified borrowers."
The new rates follow a fourth straight year of improving economic health for the FHA as they have gained $44 billion in value. According to Ed Golding, principal deputy assistant secretary for HUD’s Office of Housing, "We've carefully weighed the risks associated with lower premiums with our historic mission to provide safe and sustainable mortgage financing to responsible homebuyers. Homeownership is the way most middle class Americans build wealth and achieve financial security for themselves and their families."
What is MIP? Not to be confused with homeowner’s insurance, which is bought to protect against any potential damage to the home, the mortgage insurance premium (MIP) applies to FHA loans when the down payment is less than 20%. It is designed to protect the lender against loss as result of default on the home. The good news is that MIP is tax deductible for the homeowner. The bad news is that it is money paid by the homeowner that they will never see again. These payments are typically cancelled when the Loan to Value ratio has reached 78%.
The monthly MIP payment can impact how much home a buyer can afford as it is a significant part of a buyer’s monthly payment. While the rate of MIP is determined by the FHA & won’t change from lender to lender (unlike the interest rate on the home loan which is likely to vary) it is a good idea to shop around when looking for a mortgage and get quotes from several sources. If you have yet to begin this process, ask when you visit new home communities and the onsite agent should be able to assist you with determining a ballpark for how much home you can afford. Prequalifying for a loan is an important beginning step in the home-buying process.
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