NAR: Lower Mortgage Insurance Premiums Will Help Affordability

The monthly fee for FHA loans is being reduced, alleviating “some of the financial stress” buyers have faced from rising home prices and mortgage rates, the association says.

The National Association of REALTORS® applauded the Department of Housing and Urban Development’s move this week to reduce the mortgage insurance premium for Federal Housing Administration loans, saying the financial relief will help more homeowners and buyers weather the affordability crisis.

HUD announced Wednesday that it would lower the MIP by 0.3 percentage points, which could save some 850,000 consumers with FHA-backed mortgages hundreds of dollars a year. The mortgage insurance premium is a monthly fee that borrowers pay on top of the loan principal and interest. The FHA projects that the MIP reduction could save buyers an average of $800 in their first year of homeownership.

“NAR has continuously advocated for reducing mortgage insurance premiums to help home buyers in the current high-interest-rate environment,” NAR President Kenny Parcell said in a statement. “Mortgage rates have doubled over the past year, and home prices have increased more than 30% in some counties. In this competitive market, new and low- to moderate-income buyers are often left behind. This reduction will help alleviate some of the financial stress those potential buyers encounter when purchasing a home.”

Buyers with FHA-backed mortgages comprised 7.5% of home sales in the third quarter of 2022, according to NAR data. FHA loans are popular among first-time and low- to moderate-income home buyers because they offer low down payment options. Eighty percent of FHA borrowers are first-timers, and more than 25% are minorities. The average home purchased with an FHA mortgage costs less than $270,000—about half of the national median home price. For example, a family buying a home in Detroit with a $200,000 FHA mortgage could save $600 per year; a family buying in Phoenix with a $400,000 FHA mortgage could save $1,200 a year.

HUD says the MIP reduction comes after an improvement in the credit quality of borrowers in its FHA mortgage portfolio. The FHA’s mortgage insurance fund also has seen gains in its capital reserves, which is credited to HUD policies, home price appreciation and significant refinance volume. “These dynamics make it possible for HUD to calibrate premiums more appropriately to the performance of the loans FHA insures and pass savings on to consumers in a responsible manner and without jeopardizing the long-term sustainability of FHA’s mortgage insurance fund,” the White House said. 

The FHA mortgage insurance premium reduction will take effect March 20.