Upfront Mortgage Insurance Premiums (UFMIP): What You Need To Know

Have you heard of mortgage insurance and the premiums that come along with it? You may already know that if you make a down payment of less than 20% on a conventional loan, you must pay private mortgage insurance (PMI). (Conventional loans are loans not backed by a government entity.)

FHA loans, or loans backed by the Federal Housing Administration, require borrowers to pay mortgage insurance as well. However, mortgage insurance works differently from mortgage insurance for conventional loans.

FHA loans require both an upfront mortgage insurance premium (UFMIP) as well as an annual premium payment, or annual MIP.

Let's go over FHA upfront MIP so you know exactly what it means and how it'll apply to you as a home buyer.

When you choose to get an FHA loan, you'll pay an upfront mortgage 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.

FHA loans require down payments as low as 3.5%. In exchange for the low down payment, you must pay UFMIP on your FHA loan and a mortgage insurance premium (MIP).

UFMIP Vs. MIP

You'll also pay annual mortgage insurance premiums with FHA loans, which is different from upfront mortgage insurance premiums. If the UFMIP is the one-time payment, you can think of the MIP as the ongoing payment for taking on an FHA loan. You pay annual MIP as part of your monthly mortgage payment. This premium can range between 0.45% – 1.05% of the loan amount. The amount you actually pay largely depends on how much you put down and your loan term.

First, let's discuss some details about FHA loans. When you choose to get an FHA loan through the Department of Housing and Urban Development (HUD) and the Federal Housing Administration, you must get a home loan from an FHA-approved lender.

FHA loans, which are designed for low-to-moderate income borrowers, require lower minimum down payment requirements and lower credit scores. You should have a credit score of 580 and higher with a 3.5% down payment. If you can put 10% down, you must have a credit score in the 500 – 579 range. The minimum credit score for an FHA loan is 580 at Rocket Mortgage^®.

You must meet certain requirements to get an FHA loan:

• You must meet specific loan limits and income requirements.
• You must plan to live in 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 live in the home within 60 days of closing.

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

In other words, If the home is $200,000 and you put down 3.5%, which is $7,000, you’ll pay 1.75% on $193,000. This amounts to $3,377.50. This means you'll need to have at least $10,377.50 in cash at closing.

What if you want to refinance your loan? You may want to consider using an FHA streamline refinance, which means you can refinance an already-existing FHA-insured mortgage without having to submit credit information and undergo underwriting through your lender. You must meet a few requirements. 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 streamline refinance.

Note: You're not exempt from paying mortgage insurance with a streamline refinance. You must pay a UFMIP of 0.55%.

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

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

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

When you take an FHA loan, you must pay both an upfront mortgage insurance premium and a monthly premium to protect your lender in case you default on your loan.

An FHA loan upfront mortgage insurance premium (UFMIP), is also called an upfront premium. The upfront mortgage premium will cost 1.75% of your loan amount. You'll pay an ongoing MIP as well, as part of your monthly mortgage payment.

The best way to avoid UFMIP is to tap into a conventional mortgage. In a few situations, you can get a UFMIP refund. You can learn more about FHA mortgage insurance refunds and to find out whether you're eligible for a refund on HUD's website.

Interested in learning more? Check out the Rocket Mortgage® article about MIP and how it differs from PMI.