Before the year even started, 2015 was deemed the “Year of the First-Time Homebuyer.” If the latest changes to the FHA Mortgage Insurance Premium (MIP) is any predictor, this moniker is likely to ring true. The FHA mortgage insurance changes coming into effect on January 26, 2015 will save first time homebuyers entering into an FHA loan a lot of money on their MIP.
What is mortgage insurance?
This type of insurance protects lenders against default by the borrower and is required on mortgages with less than a 20% downpayment. It is paid by the borrower, often in monthly installments though sometimes as a lump sum, with the lender as the beneficiary. With new programs allowing a lower percentage down, many first time homebuyers are encountering their first exposure to this requirement.
What do the FHA mortgage insurance changes mean for you?
In a recent letter from the Federal Housing Administration (FHA), it was announced that 30-year FHA mortgage loans will have a reduced MIP. This reduction will take the current rate of 1.35% to 0.85% – a reduction of 0.5% for homebuyer’s mortgage insurance payment. The 15-year mortgages will not see a change in rate, however.
This means saving the average homebuyer with an FHA mortgage in the US will save about $900 per year. To find out how much it might actually save you (price varies on home price), consult your mortgage professional.
The agency said it will temporarily allow FHA purchase loan and refinancing applications now in process and that have a case number but have not closed to be canceled. Then, borrowers can restart the process and get new case numbers assigned on or after Jan. 26.
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