FHA mortgage insurance decreasing substantially

[Mitch Davidson]

If you're thinking about buying a multi-family property and making one of the units your primary residence, you've probably learned that FHA is the way to go if you want to minimize the down payment. FHA requires just 3.5% down for 1-4 units, whereas Conventional requires 15% for 2 units and 20% for 3-4.

One downside to this approach, however, has been that if you have good or great credit FHA's mortgage insurance, which is based solely on the loan amount, is more costly than that of Conventional. Often double the cost. Well, there's good news today. Mortgage insurance for new FHA loans, effective March 20, 2023, is going to be much lower. For example, a $300K purchase with 3.5% down and the 1.75% upfront MI financed (which is the norm) will cost about $135/mon for year one instead of about $209/mon.

Going forward, if you want to estimate the first year's monthly MIP for an FHA loan (the amount decreases each year), simply take your purchase price, multiply by your LTV (ex: .965 for 3.5% down), multiply by 1.0175 (unless you don't plan to finance the upfront MIP...most people finance it), multiply by .0055 (or .005 if you'll put 5%+ down), and divide by 12.

https://www.hud.gov/press/pres...