HUD ANNOUNCES REDUCED MONTHLY MORTGAGE INSURANCE

HUD ANNOUNCES REDUCED MONTHLY MORTGAGE INSURANCE

HUD announces reduced monthly mortgage insurance for FHA loans. It's been expected for a while there would be a change in either the monthly or up front mortgage insurance on FHA loans and now it's here.

Monthly mortgage insurance is going down by 30 bps.  For most homebuyers who utilize a FHA loan this means monthly mortgage insurance will go from 85 bps to 55bps of the loan amount.   An example calculating savings for a $200,000 loan amount the lower MI would be a savings of $600 the first year. 

FHA loans have different MI levels for different loan amounts based on down payment and term. 

It is great to see the HUD feels they can help homebuyers with mortgage payments in this way. FHA is a great loan program for many homebuyers.  Typically FHA is well suited to the borrower who has a little more debt, needs more help on closing costs, and somewhat lower credit score. 

The biggest drawback with a FHA loan has been the higher MI and the fact MI is permanent for loans with less that 10% down.  However, many homebuyers will use a FHA loan, but refinance out of it as soon as possible into a conventional product where MI is not permanent, or they won't be in the home forever so permanent MI is not an issue.

Lowering the monthly mortgage insurance is a very good move.  I hope more help is forthcoming particularly for those buying their first home.