Recently both FHA and VA announced a significant reduction in costs for homebuyers. FHA is reducing the monthly mortgage insurance premiums for the vast majority of borrowers by approximately 35%! The vast majority of FHA borrowers put 3.5% down (the minimum) to obtain a 30-year fixed mortgage. The monthly premium on that loan is being reduced from .85% to .55%. Here is a simple example:

$400,000 Mortgage Amount
$ 283.33 Previous Monthly Premium
$ 183.33 New Monthly Premium
$ 100.00 Savings Monthly (35.3%)

In addition, in high-cost areas such as Washington DC and New York, those who exceeded a loan amount of $625,500 had to pay a .20% premium. Now the premium starts above the present conforming limit of $726,200. The premiums are lower for those who put more money down and for those who opt for 15-year mortgages. The effective date for the lower premiums is for loans “endorsed” (endorsed means insured by FHA—more on that date as we get clarification from FHA) on or after March 20th. The upfront premium of 1.75% remains unchanged.

Not to be outdone, VA also announced a reduction in costs. VA does not have a monthly insurance premium, but charges an upfront funding fee, which can be financed into the mortgage amount like the FHA upfront mortgage insurance premium. The funding fee for first time use and less than 5% down was reduced from 2.30% to 2.15%. The funding fee for subsequent use and less than 5% down was reduced from 3.60% to 3.30%. Again, a simple example:

$400,000 Mortgage Amount
$ 9,200 Previous Funding Fee
$ 8,600 New Funding Fee
$ 600 Savings Which Lowers the Loan Amount if Financed

The VA funding fee reduction will be in effect for loans closed on or after April 7th. Sources: FHA and VA