More Affordability on The Way

From Housing and Urban Developments press release on Wednesday February 23, 2023

The premium will be reduced from 0.85 percent to 0.55 percent for most homebuyers seeking an FHA-insured mortgage, which could mean an estimated savings of $678 million for American families in aggregate by the end of 2023 alone. The reduction will benefit an estimated 850,000 borrowers over the coming year, saving these families an average of $800 annually.

This cut will help overall FHA borrowers with lower monthly payments but a big take away for me is that it will also help more buyer qualify for a loan and enter the housing market.

The average number HUD release is based on a $265,000 purchase where the savings will be about $800 per year which lowers the qualification burden as well. From the press release:

For the same borrower with a mortgage of $467,700 – the national median home price as of December 2022 – FHA’s annual MIP reduction will save them more than $1,400 in the first year of their mortgage.

Typically FHA loans have a bit higher closing costs as there is a upfront Mortgage Insurance Premium, MIP, payment. The upfront MIP is typically 1.75% of the loan amount. For example of a $200,000 home with an FHA loan the MIP would be $3,500 which is added to the costs due at closing (closing costs) or additionally can be wrapped in to the loan.

Types of Homes That Will Qualify

Another piece of good news in this is the wide variety of homes that will qualify for the reduction. This includes site built homes, townhomes, condo’s, and manufactured homes.

Manufactured homes will still need the foundation engineering certificate to qualify for an FHA loan. We can help you with any questions on the process for manufactured homes.

Other FHA Changes

HUD has made other changes to the FHA program recently to help more people get in to homes as well as insure discrimination is not occurring in the process.

1. In a move to make it easier for first time homebuyers to qualify HUD revamped the underwriting guidelines for FHA loans to allow positive rental history to count for the buyer, where it did not before. This happened in September of 2022 and makes entering the home ownership market from the rental market easier.
2. Guidelines changed in the summer of 2021 to allow the actual student loan payment monthly amount to count as part of the debt to income ratio instead of what had been 1% of the total amount owed. This change had significate impact for buyers with student loan debt.

All Things Considered

The recent moves by HUD in relation to FHA loans stand to make entry into the home ownership market easier and less expensive. Please reach out to our team at Rankin Realty if you have any questions or would like help finding your new home.

Heather Rankin is a Realtor and Owner/Broker of Rankin Realty at Lake Powell specializing in the Lake Powell areas of Page, AZ and Greenehaven, AZ as well as Big Water and Kanab Utah, and Colorado City Arizona.