Good News for First Time Home Buyers: FHA Loans at Reduced Rates!
Everyone knows how expensive home ownership can be these days. If you're a first-time homebuyer looking to purchase an affordable home with a lower down payment, you may have already heard of FHA loans. The Federal Housing Administration (FHA) offers loans to help people achieve their dreams of homeownership, and they recently made an exciting announcement that helps buyers save money.
The FHA recently reduced their annual mortgage premium from 0.85% to 0.55%, or a 0.30% reduction. Buyers interested in FHA loans would save an average of $800 a year on their mortgage insurance premium, which comes out to about $66 per month!
So… What is an FHA loan?
An FHA loan is a type of mortgage that is insured by the Federal Housing Administration, run by the U.S. Department of Housing and Urban Development.
This type of loan is usually appealing to first-time homebuyers because it requires a lower down payment and has more flexible credit requirements compared to conventional loans. FHA loans are also popular because they allow borrowers to include closing costs and other fees in the loan amount, making this kind of loan a one-stop shop. Find FHA loans income requirements and more information about how you could qualify here.
What is a mortgage insurance premium (MIP)?
When you take out an FHA loan, you are required to pay a mortgage insurance premium (MIP) that comes with it. This is a fee that is paid to the FHA to protect lenders against losses that may occur if borrowers default on their loans. The MIP is typically paid in two parts: an upfront premium that is paid at closing, and an annual premium that is paid as part of your monthly mortgage payment. Reduced costs on the MIP don’t have any effect on the FHA loan interest rates, however.
Finally, what does the FHA premium reduction mean for borrowers?
With the recent premium reduction from 0.85% to 0.55%, FHA borrowers can save money on their annual mortgage insurance premium. These reduced FHA loans aim to make homeownership more affordable, especially for first-time homebuyers.
To give you an idea of possible savings, we’ll calculate possible FHA loans and premium using the reduced rate: For example, let's say you have a $200,000 FHA loan with a 3.5% down payment. Under the old premium rate of 0.85%, your annual MIP would have been $1,700. However, with the new premium rate of 0.55%, your annual MIP would be reduced to $1,100. That's a savings of $600 per year, or $50 per month. Remember, it’s also possible to refinance your home with an FHA loan!
All in all, the FHA's decision to reduce its mortgage insurance premium is great news for first-time homebuyers and other borrowers who take advantage of FHA loans. If you're considering an FHA loan, be sure to talk to your lender about how the premium reduction could impact your mortgage. Find out more 2023’s FHA loan reduction here.
Curious about how this could impact your home search? Get in touch with us to find a local lender who can tell you more. Or if you’re just in the market to peruse beautiful homes in the area, check out our featured listings.