Biden-Harris Plan to Save Homebuyers and Homeowners $800 a Year

A Targeted Cut for FHA Borrowers

In February 2023, the Biden-Harris administration announced a plan to save homebuyers and homeowners with new Federal Housing Administration (FHA)-insured mortgages an average of $800 per year. The savings came from a reduction in FHA's annual Mortgage Insurance Premium (MIP).

The Department of Housing and Urban Development (HUD), through FHA, cut the annual MIP by 0.30 percentage points — from 0.85% to 0.55% for most new FHA borrowers. HUD estimated the change would benefit roughly 850,000 homebuyers and homeowners with new FHA-insured mortgages in 2023 alone.

How FHA Mortgage Insurance Works

FHA-insured loans allow borrowers with lower down payments (as low as 3.5%) and lower credit scores than many conventional mortgages. In exchange, FHA borrowers pay a mortgage insurance premium — both an upfront premium at closing and an ongoing annual MIP built into monthly payments.

Because the annual MIP is calculated as a percentage of the outstanding loan balance, even a small reduction translates into meaningful annual savings for typical borrowers. On a $200,000 FHA loan, a 0.30-point cut equates to roughly $600 per year; on a $300,000 loan, closer to $900. HUD's $800 figure was an estimated average across a range of FHA-insured mortgages.

Why the Administration Made the Change

Several factors contributed to the decision:

• Home prices had climbed sharply during the pandemic, making affordability a growing concern.
• Mortgage rates had risen from pandemic-era lows, shrinking what households could afford.
• FHA's Mutual Mortgage Insurance Fund capital reserve had strengthened materially, giving HUD room to reduce the MIP without jeopardizing the fund's health.
• First-time buyers — particularly buyers of color, who rely on FHA more heavily than on conventional financing — had been disproportionately squeezed.

Who Benefits

The MIP cut applied to most new FHA forward mortgages originated after the effective date. Borrowers with loans already in place did not automatically benefit; they would need to refinance into a new FHA loan or explore other options to capture the savings.

Groups particularly helped include:

• First-time homebuyers using FHA's low-down-payment option.
• Buyers of color, who make up a larger share of FHA borrowers than of conventional mortgage borrowers.
• Lower- and moderate-income buyers in higher-cost metros.

Broader Housing Cost Actions

The FHA premium reduction was one piece of a broader set of Biden-Harris housing cost actions. Others included:

• Home Energy Rebate programs (eventually reaching $8.8 billion) funded under the Inflation Reduction Act to help homeowners electrify and weatherize.
• A 2024 White House plan to lower overall housing costs, including proposals for a $10,000 tax credit for first-time homebuyers.
• HUD actions to support HOME investment partnerships, Low-Income Housing Tax Credit projects, and manufactured housing.
• Federal Housing Finance Agency (FHFA) pricing adjustments on Fannie Mae and Freddie Mac loans to support lower-income borrowers.

What Homebuyers Should Do

Homebuyers considering an FHA loan should:

• Confirm with their lender that the reduced annual MIP applies to their loan.
• Compare FHA financing with conventional loans (including low-down-payment conventional programs) to see which option offers lower lifetime cost.
• Ask whether an FHA streamline refinance could help existing FHA borrowers capture the new premium.

As with any federal housing program, borrowers should verify current rates and rules on HUD's website or through a HUD-approved housing counseling agency — premiums and policies can change with future administrations and budget cycles.