FHA Lowers Mortgage Insurance
On February 22, 2023, the Federal Housing Administration (FHA) released Mortgagee Letter 2023-05, announcing several changes to its mortgage insurance premiums (MIP) for new FHA-insured mortgages. These changes are expected to significantly reduce the monthly payment for borrowers and make homeownership more affordable for more Americans.
The most significant change is the reduction in the annual MIP for most FHA-insured mortgages from 0.85% to 0.55% of the loan amount for borrowers who put down at least 3.5% of the purchase price. This means that borrowers will pay a lower amount each year towards their mortgage insurance, resulting in a lower overall monthly payment.
New FHA Loan Limits for 2023
Additionally, the FHA announced an increase in the maximum loan limit for FHA-insured mortgages. The new loan limit is $472,030 for most areas, with higher limits for high-cost areas. The FHA loan limit ceiling for high-cost areas with exceptionally high home values is $1,089,300. These loan limits apply to single-family homes and are subject to change annually based on changes in median home prices. You can find the new loan limits by clicking on the resource section to find the link to fha loan limits.
Using the example of a borrower with an annual income of $100,000, a monthly debt payment of $400, and a DTI ratio of 48%, these changes could have a significant impact on their ability to afford a home. Assuming a 3.5% down payment and a 30-year fixed-rate mortgage with an interest rate of 5.625%, this borrower could potentially afford a home priced at $467,500 vs $450,000, or save approximately $108 per month.
In summary, the changes announced in Mortgagee Letter 2023-05 are expected to make homeownership more affordable for more Americans, especially those with lower down payments and higher debt-to-income ratios. Borrowers should consult with their lenders to determine how these changes may impact their specific situation.
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