FHA Monthly Mortgage Insurance To Drop

FHA is lowering it's monthly mortage insurance costs.  From Bloomberg.com:

The annual fees the Federal Housing Administration charges to guarantee mortgages will be cut by 0.5 percentage point, to 0.85 percent of the loan balance, Julian Castro, secretary of the Department of Housing and Urban Development, said today during a conference call with reporters. Under the new premium structure, FHA estimates that 2 million borrowers will be able to save an average of $900 annually over the next three years if they purchase or refinance homes.

This is a substantial cut.  FHA monthly mortgage insurance premiums used to be about 1/3 of what they are now:

The FHA has been increasing premiums since 2011 to offset losses caused by defaults on mortgages it backed after the housing bubble burst. Housing industry participants say the increases in annual fees, which are now at 1.35 percent of the loan balance, are squeezing buyers with modest incomes out of the market.

What this means is that the monthly PMI costs (FHA calls those costs MIP) will drop by 37% for new home buyers.  For example, an home buyer, getting a $500,000 FHA loan in 2014 is paying about $562/month in FHA PMI.  This new directive will lower that monthly FHA PMI cost to $354/month for a savings of $208 monthly--that's a couple of cell phone bills.

Homeownership groups praised the policy shift.