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FHA annual mortgage insurance premium was reduced today for loans endorsed on or after March 20,2023, per the latest announcement.
What is FHA Mortgage Insurance Premium?
FHA (Federal Housing Administration) loans are insured by Housing and Urban Development. To insure the lenders against default, it charges insurance premiums from the borrowers. There are two kinds of insurance premiums – Upfront Mortgage Insurance Premium (UFMIP) and Annual Mortgage Insurance Premium (MIP).
How much is FHA’s Upfront Mortgage Insurance Premium (UFMIP)?
FHA’s UFMIP is 1.75% of the loan amount. So, if you are borrowing $400,000, your upfront mortgage insurance premium will be $7,000. You have the option of adding this to your loan amount and do not have to bring this cash to the closing table. If you decide to do that, in this example, your loan amount will be $407,000 ($400,000 of base loan amount + $7,000 of UFMIP). In the recent announcement, FHA didn’t make any changes to this.
How do I calculate FHA Annual Mortgage Insurance Premium?
The FHA annual mortgage insurance premium factor is multiplied by the base loan amount and then divided by 12 to divide the annual mortgage insurance premium into 12 equal installments over the course of the year. This is added to your monthly mortgage payment that you pay to your lender/servicer, so you don’t have to pay it separately to FHA. In the previous example, if the annual MIP was 50 basis points (bps) or 0.5%, it would be $400,000 * 0.5% = $2,000 for the year. This will result in $166.67 added to your monthly mortgage payment ($2,000/12).
What is the new FHA’s Annual Mortgage Insurance Premium for 2023 loans?
After the reduction announced today, most borrowers will pay 50 bps (or 0.5% of the loan amount) as the FHA annual mortgage insurance premium. The MIP is dependent on the loan term (higher for a 30-year loan than a 15-year loan), down payment (lower for >10% down payment), and loan amount (higher for loan amounts greater than $726,200.
See the table below for all possible combinations. The highlighted numbers are updated by FHA and are reduced compared to before.
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