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BIG NEWS: FHA lowers monthly MI rate, making its loan program more affordable

Shawn Von Talge



01-21-2015

It wasn’t all that long ago (2008 I believe) when FHA’s Mortgage Insurance Premium (MIP) was .50% of the total loan amount. At the time it was a very competitive premium and given the same type of parameters (i.e. loan-to-value, credit score, etc.) was consistently lower than its competitors Fannie Mae and Freddie Mac. However, once the recession hit FHA started reevaluating its risk and the federal mandate of a 2% capital reserve ratio was in jeopardy and eventually fell short of this requirement. Over the next 6 years and six MIP hikes later the premiums on FHA-backed loans increased 270%, going from .50% to 1.35% on their 30 year loan program. It’s federal mandate of “affordable homes” clearly went out the window and with it so did it’s competitive advantage over Fannie Mae and Freddie Mac.

However, on January 8th, 2015, FHA announced a much needed and fruitful change to help its loan program regain some of the competitiveness it lost with the aforementioned MIP hikes. The big announcement was that, for FHA Case numbers issued on or after January 26, 2015, the MIP rate on its 30-year loan program will drop from 1.35% to .85%. This change (depending on the loan amount used) saves the average consumer $57.00 a month or $684 annually. This reduction not only saves the consumer (YOU) money but could potentially increase your purchasing power by over $12,000. For example, all things being equal you could have purchased $172K home but can now purchase $184K home with the same payment. In connection with this FHA, depending on several factors, typically carries an 1/8 lower rate than conventional financing. Please consult a mortgage professional to find a product that best fits your needs but FHA certainly is much more attractive than what it had been.

Thanks for reading!

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