I wanted to write today regarding the announcement made Feb. 22, 2023, from the U.S. Department of Housing and Urban Development in Mortgagee Letter 2023-05.
The announcement applies to most FHA borrowers, including 203k Renovation loans.
What has occurred is the Annual Mortgage Insurance Premium or MIP, which Is paid with each monthly payment, has been reduced by up to 25 to 30 bps or .25 to .30.
Previously it was up to .85 on a thirty year term FHA mortgage, so this is a significant reduction that will result in lower monthly costs for most FHA borrowers.
What did not change is the Upfront Mortgage Insurance Premium (UFMIP) paid once at closing on most FHA insured loans. That fee remains 1.75% for most FHA mortgages and can still be paid by adding that fee to the base loan size instead of paying as a lump sum at closing.
Additionally for those FHA borrowers who make a 10% or more down payment, the duration of paying the monthly mortgage insurance premium (MIP) has been reduced to 11 years from the full 30-year term of a 30 year FHA Mortgage.
HUD doesn’t often adjust mortgage insurance costs, and this will mean lower monthly payments for most FHA borrowers. This change is very helpful for those seeking funds to renovate a 1 to 4 unit property using an FHA 203K Renovation mortgage.
Below is a brief summary of the changes HUD has announced effective Mar. 20 2023-
|Base Loan Amount||LTV||MIP(bps)||Duration|
|Less than or = to $726,200||90% of less||50||11 years|
|Over 90% to 95%||50||Mortgage Term|
|Greater than 95%||55||Mortgage Term|
|Greater then $726,200||90% of less||70||11 years|
|Over 90% to 95%||70||Mortgage Term|
|Greater than 95%||75||Mortgage Term|
Additionally, this announced change will amend the base loan amount threshold used to establish MIP rates to the national Conforming loan limit of $726,200 for single unit properties.
Here is an example of an FHA 203k Renovation mortgage for a single family home showing the new lower MIP rates and the previous higher MIP rates to illustrate the monthly savings an FHA 203k borrower will see-
· Sale Price $300,000
· Total Renovation Cost $100,000
· Total Transaction Cost $400,000
· Minimum 3.5% Down Payment $14,000 (3.5% down payment on total 400k cost)
· Base Loan Size $386.000
· UFMIP 1.75% of Base Loan $6755.00 (added to base loan size)
· Total FHA Loan Size $392,755
n the past, before the announced MIP changes, the monthly cost or MIP would have been a factor of .0085 X base loan size or $273.42 paid monthly for all 30 years of the 203k loan.
With the HUD announced changes, the MIP will be reduced to a factor of .0055 X base loan size or $176.92 paid monthly.
The monthly savings will be the difference between $273.42 and $176.92 or $96.50 in this example less per month than before the change.
This 203k Renovation example, with the new lower MIP costs will be helpful to FHA 203K borrowers by lowering the cost of home ownership and renovation costs each month.
Down payment and terms shown are for informational purposes only and are not intended as an advertisement or commitment to lend. Please contact us for an exact quote and for more information on fees and terms. All loans subject to credit approval. Rates and fees subject to change. Not all borrowers will qualify.