Upfront mortgage insurance premium (UFMIP): What you need to know

With lower minimum down payment and credit score requirements, Federal Housing Administration (FHA) loans are an accessible option for those looking to buy a house. While this affordable option can open the door to homeownership for many, FHA loans come with their own unique expense. While you normally need to make regular payments for mortgage insurance if your down payment is less than 20%, FHA loans also require an upfront mortgage insurance premium, or UFMIP, to protect lenders in case you default on the mortgage. Here’s what you need to know about UFMIP and how it affects your cost of buying a home.

What is UFMIP?

When you choose to get an FHA loan, you’ll pay an upfront mortgage interest premium (UFMIP), which amounts to 1.75% of your base loan amount. You can pay the premium when you close on your FHA loan, or you can finance it into your loan amount. UFMIP protects the lender in case you default on your mortgage payments.

An FHA loan down payment can be as low as 3.5% of the home’s purchase price. In exchange for the low down payment, you must pay UFMIP on your FHA loan and a mortgage insurance premium (MIP). First-time home buyers may opt for an FHA loan because they don’t have equity from a previous home to use for their down payment.

UFMIP vs. MIP

While both exist to protect lenders against the possibility of a default, here are some key differences between UFMIP and MIP:

UFMIP example

Here’s an example of how UFMIP might work. Let’s say you plan to buy a home for $200,000 and you’re approved for an FHA loan and must make a 3.5% down payment. You’ll need to bring 1.75% of that amount at closing, in addition to other closing costs.

In other words, if you buy a $200,000 home with a 3.5%, or $7,000, down payment, you’ll pay 1.75% on the loan amount of $193,000. This adds up to $3,377.50 and means you’ll need to have at least $10,377.50 in cash at closing. You could also add that amount to your loan if you choose to finance your closing costs.

Other FHA loan requirements

MIP isn’t the only closing cost to consider when getting an FHA loan. In addition to the down payment, you also have to worry about escrow fees, homeowners insurance, and title insurance, among others.

FHA loans are designed to help low- to moderate-income borrowers afford a home purchase. The low minimum down payment and low credit score requirement make them more accessible than conventional loans.

Just keep in mind that when you choose to get an FHA loan through the Department of Housing and Urban Development (HUD), you must get a home loan from an FHA-approved lender.

Requirements to qualify for an FHA loan

You must satisfy the following requirements to get an FHA loan:

• You must meet specific loan limits and income requirements.
• You must have a credit score of 580 or higher to make the minimum 3.5% down payment.⁴ A score of 500 – 579 requires 10% down. The minimum credit score for an FHA loan is 580 at Rocket Mortgage.¹
• You must plan to treat the home as your primary residence.
• An FHA-approved appraiser must complete the appraisal for your FHA loan.
• The home must have an inspection and meet minimum property standards.
• You must plan to move into the home within 60 days of closing.

Refinancing and UFMIP

What if you want to refinance your loan? You may want to consider using an FHA Streamline refinance,² which means you can refinance an already-existing FHA-insured mortgage without having to submit credit information. To refinance, you must:

• Plan to refinance an FHA insured loan
• Not be delinquent on your mortgage payments
• Experience a net tangible benefit (In other words, it must be beneficial for you to take the FHA Streamline refinance.)

There are a plethora of refinance options available to borrowers, including a standard, rate-and-term refinance, and a cash-out refinance. You may be eligible for a partial credit on your UFMIP if you refinance within 3 years.³

Note: You’re not exempt from paying mortgage insurance with an FHA Streamline Refinance. You must pay a UFMIP of 0.55%.

Can UFMIP be refunded?

As a homeowner, you could get a partial UFMIP refund if you closed on your loan on or after January 1, 2001, and are paying off (or refinancing) your FHA loan within 5 years from the closing date. You can also get a refund if you refinance your current FHA loan to another FHA loan within 3 years.

Additionally, you can get a refund if you overpay, make a payment for an invalid case number, or find yourself in a non-endorsed case situation that gets canceled by the lender or HUD.

Learn more on HUD’s website about FHA mortgage insurance refunds and whether you can get a refund. You can also take a look at HUD’s upfront mortgage insurance premium refund percentages to learn whether you qualify.

FAQ about FHA UFMIP

Here are questions people frequently ask about UFMIP.

What is upfront FHA mortgage insurance?

An upfront mortgage insurance premium reduces the risk a lender takes on by accepting a smaller down payment. This premium is required for borrowers with an FHA loan, in addition to monthly mortgage insurance payments for 11 years with a down payment of 10% or more, or throughout the life of the loan if the down payment is less than 10%.

Is UFMIP a closing cost?

UFMIP is part of your closing costs if you have an FHA loan. It’s equal to 1.75% of the purchase price of your home, minus your down payment.

Is upfront UFMIP required on all FHA loans?

UFMIP is a requirement for FHA home loans. In addition, you’ll make monthly MIP payments. If you put less than 10% down, you’ll have to pay MIP for the life of your mortgage loan. If your down payment is 10% or more, you’ll pay MIP only for the first 11 years.

The bottom line: UFMIP is a requirement for an FHA loan

FHA loans make homeownership a realistic possibility for those who can only afford smaller down payments. UFMIP mitigates the risk to lenders who might otherwise hesitate to approve loans for buyers who can’t put significant money down up front. You can avoid UFMIP if you take out a conventional loan, but if an FHA loan is the best course of action, it’s something to keep in mind as you calculate your costs.

Ready to start the home buying process? You can apply online with Rocket Mortgage.

¹ Rocket Mortgage is not acting on behalf of FHA or HUD.

² The FHA Streamline program may have stricter requirements in some states. In order to qualify for the FHA Streamline program, an immediate .5% minimum reduction in interest and mortgage insurance premium is required. Some states may require an appraisal.

³ Refinancing may increase finance charges over the life of the loan.

⁴ To qualify for this offer, you must meet all standard FHA eligibility requirements. In addition, your total mortgage payment, including taxes and insurance, cannot exceed 38% of your income, your debt-to-income (DTI) ratio cannot exceed 45%, and you must have 12 months of verifiable housing history immediately prior to your application, no late payments 30 days or greater in the last 12-months, and no derogatory marks on your credit report. Not available on jumbo loans. Asset statements may be needed, no more than 1 day of non-sufficient fund fees are allowed in the most recent 2 months prior to application. Additional restrictions/conditions may apply.

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