December 15, 2010
An FHA Up Front Mortgage Insurance Premium or UFMIP is required whenever a borrower buys a new home with an FHA insured mortgage. The up front mortgage insurance premium is a percentage of the loan and the borrower pays this percentage up front–hence the name. The money placed into an escrow account.
Should the borrower default on the mortgage and go into foreclosure, the UFMIP is paid to the Department of Housing and Urban Development. The UFMIP is a way to protect the government’s investment in the FHA mortgage, it’s not meant to transfer any money to the buyer.
This insurance premium should not be confused with the FHA monthly mortgage insurance payment FHA mortgage holders must pay each month. The up front mortgage insurance premium is a lump sum amount paid at closing. Like the UPMIP, the monthly mortgage insurance payment is a percentage of the loan, but not the same percentage as the UPMIP.
Up Front Mortgage Insurance Premiums have rules about payment; they must be paid in a lump sum. Buyers have the option of financing the UFMIP and including it in the FHA mortgage amount, or they may pay in cash. But FHA requirements state buyers must pay 100% of the sum one way or the other; it’s not possible to split the UFMIP and pay half in cash and finance the rest.
FHA borrowers who decide to refinance their home using the FHA Streamline program must make another UFMIP payment, but the good news is that any money in the original Up Front Mortgage Insurance account may be transferred to the new account.
Some buyers who purchased homes with an FHA home loan after September 1, 1983 may be entitled to a refund or partial refund of FHA mortgage insurance money, contact the FHA or your lender for more information.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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