FHA Annual Mortgage Insurance to Go Down in 2017, HUD Says

Federal Housing Administration officials announced today that they will reduce the annual mortgage insurance premium for FHA loans by a quarter of a percent.

The lower MIP rate will apply to most borrowers who use the FHA program to buy a home in 2017, and will save them an average of $500 per year. The lower insurance premium takes effect on January 27, 2017.

FHA to Reduce Annual Mortgage Insurance Premium (MIP) in 2017

Rising home values and mortgage rates have put the squeeze on home buyers lately, and have reduced mortgage loan application volume as well. Borrowers who use the FHA loan program have another added cost, in the form of an annual mortgage insurance premium, or MIP.

As a result of rising housing costs, and the added burden of the annual MIP, FHA loan application volume has been on the decline lately. So federal housing officials are making a change to attract more borrowers.

On January 9, 2017, the Department of Housing and Urban Development (HUD) announced that it would reduce the annual mortgage insurance premium for most FHA loans in 2017. As HUD officials stated, this is a modest reduction that “expands credit access and reflects improved economic health of FHA.”

The Federal Housing Administration will lower its annual mortgage insurance premium (MIP) by 25 basis points, or 0.25%. This reduction will apply to most new mortgage loans with a closing / disbursement date on or after January 27, 2017.

The first HUD mortgagee letter of 2017 was sent out to lenders earlier today, with additional details about the annual MIP reduction. To learn more about this FHA program change, refer to HUD Mortgagee Letter 2017-1, which is available online in PDF format.

Here’s a screenshot from the official policy change letter, which shows the current annual MIP as well as the reduced premiums that will take effect later this month. Note the “New MIP” column in this chart.

FHA annual MIP chart

HUD Feeling Good About Agency’s Economic Health

The reduction in FHA annual mortgage insurance premiums reflects the agency’s improved economic health. According to HUD officials, FHA’s Mutual Mortgage Insurance Fund (MMIF) has grown for the last four years in a row. The MMIF was basically wiped out during the last housing crisis, as FHA paid out one insurance claim after another.

Over the last few years, HUD has used higher mortgage insurance premiums and other actions to restore the FHA’s funds. The MMIF has gained $44 billion in value since 2012 and now exceeds the requirements mandated by federal law, according to the latest assessment.

In a related press release, HUD Secretary Julian Castro said:

“After four straight years of growth and with sufficient reserves on hand to meet future claims, it’s time for FHA to pass along some modest savings to working families. This is a fiscally responsible measure to price our mortgage insurance in a way that protects our insurance fund while preserving the dream of homeownership for credit-qualified borrowers.”

Learn more: Do you have questions about the reduced FHA mortgage insurance premium (MIP) rates for 2017? Refer to HUD Mortgagee Letter 2017-1, which was published on January 9th. It’s available on the Department of Housing and Urban Development website and can be found with a Google search.