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In February 2023, the Biden administration announced an FHA mortgage insurance reduction, and the lower premiums took effect on March 20, 2023. For homebuyers and homeowners who take out a new FHA loan, including a refinance, this means lower costs.
While any savings are certainly a relief to homeowners, understanding the specifics of how this change may impact you is helpful. Let’s explore how these lower costs may impact your mortgage payments.
Check your FHA eligibility. Start here (Nov 2nd, 2026)
Biden administration lowers premiums for FHA-insured mortgages
In late February 2023, the Biden administration announced a reduction to mortgage insurance premiums on FHA-insured mortgages.
Specifically, the action involves lowering the annual mortgage insurance premium tied to these loans by 0.30%. For most new borrowers with 30-year loans, this lowered the annual mortgage insurance premium from 0.85% to 0.55%. The premium is 0.50% with 5% or more down, 0.70% to 0.75% for loans over $726,200, and 0.15% to 0.65% for 15-year loans.
The change to mortgage insurance premiums came at a time when rising interest rates were cutting into the budgets of prospective homebuyers across the country. Regardless of the higher interest rates, these cuts can help homeowners save money every year.
“At a time when budgets are tight and homeownership is out of reach for too many, FHA’s premium reduction will allow more households to access the stability and wealth creation of homeownership, particularly the first-time homebuyers and families of color who rely heavily on affordable FHA-insured mortgages,” said Julia Gordon, the Assistant Secretary for Housing and Federal Housing Commissioner, in a press release.
Gordon continued, “For many families, the savings will make the difference in their ability to purchase the home of their choice.”
What the FHA mortgage insurance reduction means for you
Whether you currently have an FHA-insured mortgage or plan to purchase a home using an FHA mortgage, the lower premium has an impact on your budget.
Here’s the breakdown of savings opportunities:
Current homeowners with FHA mortgage
The lower premium applies only to loans FHA endorsed for insurance on or after March 20, 2023. If your FHA loan is older, your premium did not change. An FHA streamline refinance into a new loan gets the current, lower premium.
To see whether a streamline refinance would lower your payment, ask a lender for a quote.
According to the Biden administration’s announcement, the premium reduction took effect on March 20, 2023.
Future homeowners with FHA mortgage
If you are a prospective homeowner, you’ll see the lower mortgage insurance premiums baked into your original mortgage loan documents. The lower premiums apply to loans FHA endorses for insurance on or after March 20, 2023.
When choosing a home to purchase, the lower mortgage insurance premiums might have an impact on your decision. For example, the lower costs could help you afford to purchase the home you really want. Additionally, the lower insurance premiums might help you qualify for the wealth-building opportunity homeownership provides.
Check your FHA eligibility. Start here (Nov 2nd, 2026)
How much can you save
The exact amount you can save from the FHA mortgage insurance reduction varies based on the size of your loan. In February 2023, HUD estimated that the cut would save the average FHA borrower about $800 a year.
If you have an FHA-insured mortgage, your budget might see a bit more wiggle room.
Here are some examples of how much a homebuyer might save:
- Detroit homebuyers with a $200,000 mortgage could save around $600 per year
- Cincinnati homebuyers with a $300,000 mortgage could save around $900 per year
- Phoenix homebuyers with a $400,000 mortgage could save around $1,200 per year
- Austin homebuyers with a $500,000 mortgage could save around $1,500 per year
As a homeowner or prospective homebuyer, the exact amount you will save varies. Depending on your situation, you might save several hundred or over a thousand dollars per year. It’s easy to see how this change will likely have a positive impact on your budget.
Reasons for the change
The FHA loan program is designed to encourage homeownership. Throughout the history of the program, the rules have changed periodically. The March 2023 premium change was spurred on by a desire to keep homeownership affordable.
Here’s a closer look at the reasons behind the change.
Keep homeownership affordable
Homeownership is an important way for households to build wealth over time. One goal of the FHA home loan program is to keep homeownership affordable for potential buyers. According to the White House fact sheet, “this cost-lowering measure will make buying a home more attainable and affordable for more low- and middle-income borrowers.”
The cost cuts are also meant to help first-generation homebuyers and first-time homebuyers of color. According to the fact sheet, these buyers have been particularly affected. They are less likely to have sufficient resources for a sizeable down payment, due to a longstanding gap in intergenerational wealth transfers.
Excess mortgage insurance fund
Lower costs for homeowners with an FHA-insured mortgage are enticing. However, excess funds in the FHA’s mortgage insurance fund made the reduction possible.
Mortgage insurance premiums are designed to protect the lender. In this case, the premiums help protect the FHA and the taxpayer from a loss when a borrower defaults on their home loan. The premiums are held in the FHA’s mortgage insurance fund, which must maintain a certain amount of reserves dictated by Congress.
At the time of the announcement, the FHA’s mortgage insurance fund had accumulated more than five times the required reserve levels. With the excess reserves, the FHA was in a very good position to shield the taxpayers from the fallout of borrower defaults.
Since the reserves had reached high levels, the FHA had more wiggle room in its costs. Ultimately, this meant that the FHA was able to make do with lower mortgage insurance premiums without putting the taxpayer at risk or impacting the long-term sustainability of the FHA’s mortgage program.
When did the FHA mortgage insurance reduction take effect?
According to the Biden Administration’s announcement, the changes went into effect on March 20, 2023. Only loans FHA endorsed for insurance on or after that date get the lower premium.
For homeowners who have questions, don’t hesitate to reach out to your mortgage loan servicer. As a homebuyer, your lender should be able to provide the information you need about these lower costs.
Key takeaways
Homebuyers and homeowners who take out a new FHA-insured loan can expect lower loan costs. Lower mortgage insurance premiums give them more flexibility in their budgets.
Prospective homebuyers might use this wiggle room to boost their approval odds or qualify for a larger loan. Homeowners who refinance might put the savings toward their mortgage balance or other financial goals.
Want to learn more about FHA loans? Explore this home loan option here.
