On Wednesday, the Biden Administration announced that it would reduce the annual mortgage insurance premiums charged on loans via the Federal Housing Administration by 30 basis points, resulting in an average annual saving of $800 for homeowners. The Department of Housing and Urban Development (HUD) will reduce its annual mortgage insurance premium from 0.85% to 0.55% for most new borrowers. The reduction will take effect on March 20, and will be reflected in the President's Fiscal Year 2024 Budget.

The reduction is expected to save homebuyers and homeowners with new FHA-insured mortgages an average of $800 per year, and it will lower housing costs for an estimated 850,000 homebuyers and homeowners in 2023. The announcement is seen as a crucial step in making homeownership more attainable, particularly for first-time homebuyers and those of color.

FHA-insured mortgages are targeted at homebuyers who might not otherwise be able to achieve homeownership, accounting for 7.5% of home sales in the third quarter of 2022. These loans offer more flexible underwriting and require a smaller down payment, enabling families to begin building wealth through homeownership earlier than they otherwise might. Over 80% of FHA borrowers are first-time homebuyers, and more than 25% are homebuyers of color.

The mortgage insurance premium is a monthly fee that homeowners with FHA-insured mortgages pay to insure their mortgages, and it is paid on top of the monthly principal and interest payments. The reduction in premiums will help expand homeownership opportunities, especially for minority homebuyers and low- and moderate-income households. The move has been praised by the Mortgage Bankers Association, which called it "a move we have strongly encouraged since 2021."