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Back in February 2023, the Federal Government announced an action to reduce the annual mortgage insurance premium for FHA mortgages by 0.30 percentage points.

This reduction is monumental for buyers looking to purchase or build a new home or renovate their current home.

FHA mortgages offer assistance for buyers to help make affording a home achievable.

Today, we’ll explain the basics of FHA mortgages, review what the mortgage fee cut means for buyers, and share the mortgage process so you’re confident in taking the next step of homeownership.


FHA mortgage basics

The FHA (Federal Housing Administration) mortgage is an affordable loan product with unique features for potential homebuyers, especially those with financial challenges.

An FHA mortgage can offer buyers benefits because the FHA assumes most of the risk, meaning if an unfortunate event were to occur during your homeownership, like defaulting on your mortgage, the FHA would assume liability from the lender.

FHA mortgages offer minimum down payments, as low as 3.5%, and flexible credit score requirements, so borrowers with a lower credit score are still eligible.

Additionally, because the FHA backs these mortgages if you are to sell your home, the buyer can take over your FHA loan.*


How to use an FHA loan

You can use an FHA mortgage to purchase, build, refinance, or renovate your home. But make sure you understand the limitations and requirements for FHA mortgages before applying. This can include loan limitations, mortgage insurance, and owner-occupancy requirements.

Loan limits for FHA mortgages can vary based on location and the median home prices in your area. Speak with a lender qualified to provide FHA mortgages to help determine your loan limits.

Since the FHA assumes the risk on your mortgage, the FHA requires buyers to pay a mortgage fee or the mortgage insurance premium (MIP). This fee serves as a form of a safety net for lenders against the potential event of mortgage default.


FHA mortgage insurance premium

There are two types of FHA MIPs: The annual MIP and the upfront MIP.

The annual MIP is an ongoing monthly fee included in your monthly mortgage payments. This type of MIP is determined by the loan balance, term, and loan-to-value ratio.

The upfront MIP is a one-time fee when you close your mortgage. The upfront MIP is a percentage of your total loan amount and is based on your loan-to-value ratio and the mortgage terms as well. You can roll this upfront cost into your mortgage payments rather than paying upfront.

You can use a mortgage calculator to determine how much you may have to pay on your monthly insurance payment. While the amount is only an estimate, you will get a good idea of the budget you can afford.


Where does the mortgage fee cut come in?

The rate for the annual MIP was around .80-.90%, and the upfront MIP was hovering around 1.75% of the mortgage amount, previously.

However, as previously stated, as of March 2023, the annual FHA mortgage fee cut will drop from .85% to .55%.

This action taken by the Department of Housing and Urban Development to lower housing costs for buyers is supposed to save an average of $800 per year for FHA customers.


What does the FHA mortgage fee cut mean for buyers?

The FHA mortgage fee cut for the annual MIP means buyers can save more money, as monthly mortgage payments will significantly reduce.

These additional savings can be used to aid in your pursuit of homeownership, such as using the funds to make an impressive offer, pay more for a down payment, or on your monthly mortgage payments.

If you pay more on a down payment or your monthly mortgage payments, then you also increase your home equity—a major investing move to help you succeed.

The fee cut means you could have extra savings to update your current home, instead of settling or cutting back on your desired updates. You can use the FHA renovation loan to help fund your projects, in addition to your MIP savings.

You’ll also have savings in case something were to go awry during renovation.

If you’re building a home, you can also use an FHA construction mortgage to help cover the costs of purchasing land and construction.

With some lenders, such as The Federal Savings Bank, this mortgage is rolled into one singular mortgage, meaning you’ll only have to apply and close on the mortgage once.

The savings in MIP can allow you to spend more of your available funds on building your dream home and making it exactly what you want.

Outside of homeownership, you could use the extra savings to pay off any other debt or upcoming expenses, such as purchasing a car, paying for medical expenses, or even taking a vacation.

The FHA mortgage fee cut makes purchasing a home more affordable and creates opportunities for home buyers to save more money.


The process to apply for an FHA mortgage loan

Are you ready to get started with an FHA mortgage? Understanding the process of applying is essential but not complicated.

You can typically expect the following steps in the application process:

  • Prepare your financial documents and figure out a manageable budget
  • Research qualified FHA lenders
  • Choose a home, or prepare blueprints of a build or renovation
  • Apply with your lender
  • Underwriting begins
  • Receive approval
  • Closing

Depending on your FHA mortgage and homeownership goals, your process may vary.

For example, if you’re looking to build a home, then you’ll need to consult with builders and have contracts in place before you can be approved. Appraisals and approvals must also happen before you can close on your mortgage.

To avoid any issues or delays in your process, work with an experienced and trusted lender qualified to provide FHA mortgages. Not every lender is qualified to provide these government mortgages so be sure to find one that is approved by the FHA.


FHA loans with The Federal Savings Bank

Finding the right lender can be half the battle to purchasing a home.

You want to choose a lender who understands the FHA mortgage process and will help you along your path to homeownership.

FHA loans are a great option for people looking to purchase a primary residence or who are seeking to refinance their current home.

The Federal Savings Bank provides FHA purchase, construction, and renovation mortgages. Our team is dedicated to turning buyers’ dreams into realities.

Reach out to us today to learn more about our FHA mortgages.


Subject to credit approval. Terms and conditions may apply. Property insurance is required on all loans secured by property. *Additional rules apply.

This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to your individual situation.