On Friday, FHA announced they would reduce their Mortgage Insurance Premium (MIP) rates for most new single-family mortgages by 50 basis points (0.50%).
This is significant.
For example:
A buyer purchasing a $290,000 single-family house with the minimum 3.5% down payment would, under the current format, pay $314.44 in MIP each month for the entire life of their 30-year loan. Under the new rules, that amount will be reduced to $197.98. That’s a difference of 116.46 per month – perhaps slightly lower than your cable bill, but over the life of the loan it adds up to $41,925 in savings – enough (hopefully) to put someone through a year of college come 2045.
The background:
The FHA news was first announced by President Obama on Thursday at a speech in Phoenix that was reported on by the New York Times as one of a handful of strategic spoilers leading up to next week’s State of the Union address. The administration has been under pressure to lower MIP for some time, as the high monthly expense has discouraged creditworthy borrowers from choosing the product, and incentivized millions of others to refinance out of their FHA mortgage as soon as their situation allows.
So what does this mean for buyers?
The full and detailed FHA announcement can be read in letter form here, but the high points are:
- The reduction will only apply to FHA case numbers assigned on or after January 26, 2015.
- If you’re already under contract with an FHA case number assigned, you have a short window starting this Thursday, Jan. 15 to request that your number be canceled so you can get a new number (and a lower monthly payment) on or after the 26th – assuming that’s something your purchase contract and timeline will allow.
- MIP rates vary based on the type of property being purchased and down payment amount.
Keep in mind...
...that even with the changes, FHA will still not prevail as the most affordable product for a lot of home buyers. Right now, conventional rates are low (we’ve been locking buyers in at 3.625% for 30-year terms and 2.875 for 15-years), and we now offer a 3% down conventional product.
Still, it can be the best option for anyone who needs their credit to be looked at more flexibly (they’ll accept credit scores of 600 or better) or who will be receiving down payment funds as a gift, and this latest adjustment widens that niche.
If you have any questions or would like me to run some numbers for you or a client on the new FHA or any other mortgage product, contact me. I’d love to help.
Best,
Ed
Edmond Gosselin
Vice President of Mortgage Lending
63 Marginal Way, 1st floor , Portland, ME 04101NMLS ID: 471749
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