President Obama and the Housing and Urban Development (HUD) office announced Thursday that new FHA borrowers whose loans are cased on or after January 26, 2015 will no longer have to pay the Federal Housing Administration's mandated annual mortgage insurance premium (MIP) in full; instead they'll pay half a percent less. FHA annual MIP is contingent on loan amount and loan-to-value (LTV) ratio, and loan term, but a borrower who takes out a 30 year fixed FHA loan with the 3.5 percent minimum down payment will normally pay an annual FHA MIP of 1.35 percent.

What does lowered FHA annual MIP mean for homebuyers?

Lowering the annual premium is expected to encourage around 250,000 prospective homebuyers to make the leap in the next three years and save an average $900 in monthly mortgage costs over the course of a year.

"This action will make homeownership more affordable for over two million Americans in the next three years," said HUD Secretary Julian Castro. "Since 2009, the Obama Administration has taken bold steps to reduce risks in the mortgage market and to protect consumers. These efforts have made it possible to take this prudent measure while also ensuring FHA remains on a positive financial trajectory. By bringing our premiums down, we're helping folks lift themselves up so they can open new doors of opportunity and strengthen their financial futures."

Homeowners who refinance into an FHA loan on or after January 26 will receive the lowered MIP benefits. The program is expected to be fully functional by the end of January 2015.