For buyers with affordability concerns, we have some good mortgage news to share. Both the Federal Housing Administration (FHA) and Veterans Affairs (VA) have announced reductions in their financing fees for their mortgage programs. Read on to learn how these loan programs work and how much you could be saving!

FHA Reduces Mortgage Insurance Premium

The FHA has reduced their annual mortgage insurance costs – this will reduce the monthly mortgage insurance premium paid by the borrower. 

The annual mortgage insurance premium (MIP) for FHA loans will decrease from 0.85% to 0.55%, the White House announced last week. MIP is the monthly insurance fee that borrowers with FHA loans pay in addition to monthly interest and principal payments on their mortgages.

What Are FHA Loans?

FHA loans are home loans that are backed by the Federal Housing Administration (FHA). The FHA is a government agency that helps to make homeownership more accessible to people who might not otherwise be able to qualify for a mortgage. FHA loans are designed to be more affordable and accessible than conventional mortgages, which can be especially helpful for first-time home buyers.

How FHA Loans Can Help First Time Homebuyers

Loan counsellor walking couple through new construction loan process

One of the key benefits of FHA loans is that they often require lower down payments than conventional loans. While conventional mortgages typically require a down payment of at least 5% (and sometimes as much as 20%), FHA loans can require as little as 3.5% down. This can make it easier for first-time homebuyers to get into the housing market, even if they don't have a lot of savings.

Another advantage of FHA loans is that they have more lenient credit requirements than conventional mortgages. While a conventional lender might require a credit score of 620 or higher, the FHA allows borrowers with credit scores as low as 580 to qualify for a loan. This can be a big help for people who have less-than-perfect credit or who are still building their credit history.

How Mortgage Insurance Premiums (MIP) Work

While there are some things to consider when it comes to FHA loans, such as paying for mortgage insurance premiums (MIP), there are still many benefits to this type of loan. MIP is like insurance that protects the lender in case you can't make your mortgage payments. And while MIP can't be canceled, it's a small price to pay for the benefits of an FHA loan.

The amount of MIP you pay will depend on factors like your down payment size, the loan term, and the loan-to-value ratio (LTV). With the right financial planning, an FHA loan can still be a great option for many homebuyers.

The FHA reduction to the annual MIP rate is welcome news for folks looking to become first time homebuyers. The drop is expected to affect 850,000 borrowers this year and save homeowners $800 a year on average, according to the White House

Learn more about FHA Loan Requirements for 2023 here.

VA Reduces Funding Fee Cost

The Department of Veterans Affairs (VA) has reduced their upfront VA Funding Fee for Vets who typically finance this fee in their mortgage amount. Please note, veterans who receive VA disability are exempt from the VA Funding Fee cost.

What is the VA Funding Fee?

The VA funding fee is a one-time payment that a veteran pays on a VA-backed or VA direct home loan when they close on the home. The VA home loan program doesn’t require down payments or monthly mortgage insurance, so this fee helps to defray the cost of the loan for taxpayers. 

Learn more about the VA Loan program here.

30-Year Mortgage Rate Dips Below 7%

Another small piece of good news for prospective home buyers: Today's 30-year mortgage rates dip below 7%, according to a Fox Business report. Homebuyers seeking a longer repayment term may want to consider locking in a rate today ahead of likely increases.

What is a Good Mortgage Rate?

A good mortgage rate is the one that's attainable for you based on your unique circumstances, such as your credit score, earnings, other financial obligations, down payment size, and other factors.

A good mortgage rate leaves you enough room in your budget to contribute towards savings and investments. It should also be competitive compared to the average rates in the area where you plan to purchase a home.

To give you some context, mortgage rates hit an all time high of 16.63%  in 1981, when inflation was rampant. They fell to a 30 year low of 2.96% in 2021, and have since shot up to nearly 7% in an effort to slow inflation. 

30-year mortgage rate from December 2022 to March 2023 via

When Will Mortgage Rates Go Back Down?

This is a good question that we get all the time. Interest rates are expected to continue to go up before coming back down again, hopefully by the end of the year.

When prices go down, the cost of borrowing money for a home is likely to go down too. However, the government is keeping an eye on prices to make sure they stay down over a sustained period of time before they stop raising the interest rate on home mortgages.