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).

FHA loans, or loans backed by the Federal Housing Administration, require borrowers to pay mortgage insurance as well. However, mortgage insurance on FHA loans works differently from mortgage insurance on conventional loans. Conventional loans are a type of loan not backed by a government entity.

An FHA mortgage loan requires both an upfront mortgage insurance premium (UFMIP) as well as an annual premium payment, or MIP.

Let’s take a closer look at the FHA upfront MIP so you know exactly what it means and how it’ll apply to you as a home buyer.

What is UFMIP?

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.

An FHA loan down payment can be as low as 3.5% of the 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

You’ll also pay an annual mortgage insurance premium with an FHA loan, which is different from an upfront mortgage insurance premium. 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 from 0.45% to 1.05% of the loan amount. The amount you actually pay largely depends on how much you put down and your loan term.

FHA loans and upfront MIP: How does it work?

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 – designed to help low-to-moderate income borrowers afford a home purchase – have a low minimum down payment and a low credit score requirement. With a credit score of 580 or higher, you can make the minimum 3.5% down payment. If your credit score is in the 500 – 579 range, you’ll need to put 10% down. The minimum credit score for an FHA loan is 580 at Rocket Mortgage^®.

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 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.

UFMIP example

Now for 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 to the closing table, in addition to other closing costs.

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 and means you’ll need to have at least $10,377.50 in cash at closing. You could also choose to add that amount to your loan if you finance your closing costs.

Refinancing and UFMIP

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. 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.)

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?

Homeowners could get a partial UFMIP refund if they closed on their loan on or after January 1, 2001 and are paying off (or refinancing) their 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 additionally 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.

FAQs 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 for 11 years with a down payment of 10% or more or throughout the life of the loan with a down payment 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 only pay MIP for the first 11 years.

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

If you go the route of getting an FHA loan, you’ll enjoy several benefits of this government-insured loan program, but you’ll have to pay an upfront mortgage insurance premium and a monthly premium to protect your lender if you default on your loan.

An FHA loan’s upfront mortgage insurance premium (UFMIP) is also known, simply, as an upfront premium, and it 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.

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