What the FHA Mortgage Fee Cut Means for Buyers
4 minute read
May 9, 2023


On Feb. 22, 2023, the Department of Housing and Urban Development (HUD), through the Federal Housing Administration (FHA), made a major announcement that will impact approximately 850,000 homebuyers and homeowners. 

They announced a 30 basis point reduction to the annual mortgage insurance premiums impacting homebuyers who obtain an FHA-insured mortgage.

With an FHA mortgage fee cut from 0.85 percent to 0.55 percent, most homebuyers seeking an FHA-insured mortgage are in a position to save money. The current administration expects the change to result in savings of roughly $678 million for American families in 2023. 

With this reduction, the average homebuyer or owner with an FHA-insured mortgage will save $800 annually. 

More affordable homeownership for FHA-qualified buyers has the potential to have a positive effect on the real estate market in 2023 and beyond. 

What is the FHA’s annual MIP?

The yearly mortgage insurance premium (MIP) for FHA loans is determined by taking a percentage of the remaining loan balance. 

For instance, if the remaining loan balance is $200,000 and the annual MIP rate is 0.5% (50 basis points), the total MIP for the year would be $1,000.  

Generally, lenders divide the yearly MIP into 12 equal installments, which are then incorporated into the borrower’s monthly mortgage payments. 

FHA mortgage insurance enables wider access to mortgage financing for low- and middle-income families by compensating lenders for losses incurred in case of loan default. 

The MIP is included as part of the expenses factored into determining a borrower’s debt-to-income ratio, an essential element in qualifying households for mortgage credit.

What buyers need to know

According to a fact sheet distributed by The White House, this “cost-lowering measure will make buying a home more attainable and affordable for more low- and middle-income borrowers.”

And that’s a particularly big deal when you consider the fact that FHA-insured mortgages accounted for 7.5% of home sales in the third quarter of 2022. With this rate reduction, many low- and middle-income borrowers will be able to afford homeownership.

How much will buyers really save?

That’s the million-dollar question, and there’s a very good answer: quite a bit. The same fact sheet breaks down average savings in different parts of the country:

Borrowers in the following cities, for example, could see potential savings: 

  • Detroit with a $200,000 mortgage will save $600 per year.
  • Cincinnati with a $300,000 mortgage will save $900 per year.
  • Phoenix with a $400,000 mortgage will save $1,200 per year.
  • Austin with a $500,000 mortgage will save $1,500 per year.

As you can see, the more money an individual borrows the more money they’ll save on their monthly mortgage payment. 

Do you qualify for an FHA loan?

If the FHA mortgage fee cut excites you, the next step is to determine if you qualify for a loan. There are several requirements that borrowers must meet, including the following:

  • Property must be your primary residence 
  • Must be appraised by an FHA-approved appraiser
  • You must occupy the property within 60 days of the closing date 
  • A home inspection is required and the report must indicate that the property meets minimum standards 

Other qualifications are based on details such as income, down payment, credit score, and the amount that you want to borrow. 

FHA loan down payment

Credit score requirements vary by lender, but most require a minimum score of 500. The minimum FHA loan down payment is either 3.5 percent or 10 percent of the purchase price, depending on your credit score.

For example, if your score is 600 or higher, your lender may allow you to purchase with a down payment of 3.5 percent. However, if your score is between 500 and 600, the requirement may jump to 10 percent. 

Top benefits of an FHA loan

If you qualify for an FHA loan, compare the terms and conditions to a traditional loan. This will help you determine which type is best. Some of the benefits of an FHA loan include:

  • The FHA mortgage fee cut can save you money
  • A lower down payment
  • Lower credit score requirements
  • FHA closing costs can be rolled into your loan

Benefits like these are reason enough to consider an FHA loan. 

Talk to AAA Banking about FHA loans

The FHA mortgage fee cut will help hundreds of thousands of homebuyers and owners save money. 

If you’re in the market for a home, learn more about the FHA mortgage program and the impact it can have on your finances.

When you’re ready to apply for an FHA loan, VA loan, conventional loan, or any other type, contact us at (844) 897-2265 to learn more and discuss your options.

Photo by Mikhail Nilov

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