FHA loan rules published in HUD 4000.1 include instructions to the lender on how FHA single family mortgages are to include the Up Front Mortgage Insurance Premium, also known as UFMIP. This is an expense borrowers should plan and budget for in the pre-application phase of preparing for an FHA mortgage loan. Borrowers can choose to finance the UFMIP or pay the cost at closing time.
The UFMIP is not to be confused with the monthly mortgage insurance premium, also known as MIP, or private mortgage insurance commonly called PMI.
According to HUD 4000.1:
“FHA collects a one-time Upfront Mortgage Insurance Premium (UFMIP) and an annual insurance premium, also referred to as the periodic or monthly MIP, which is collected in monthly installments.”
Of UFMIP, the rulebook says that “most FHA mortgage insurance programs” will require payment of the UFMIP. This may be financed into the loan according to the rules, but you would need to work out the terms of that with the lender. “The UFMIP is not considered when calculating the area-based Nationwide Mortgage Limits and (loan-to-value) limits.”
How is UFMIP calculated? “The UFMIP charged for all amortization terms is 175 basis points (bps), unless otherwise stated in the applicable Programs and Products or in the MIP chart. The UFMIP must be entirely financed into the Mortgage or paid entirely in cash. Any UFMIP amounts paid in cash are added to the total cash settlement requirements.”
There are additional instructions to the lender for cases where the borrower chooses to finance the UFMIP: “…if the UFMIP is financed into the Mortgage, the entire amount is to be financed except for any amount less than $1.00. The mortgage amount must be rounded down to the nearest whole dollar amount, regardless of whether the UFMIP is financed or paid in cash.”
UFMIP payments are not refundable, “except in connection with the refinancing to a new FHA-insured Mortgage.”
We will cover FHA loan rules for MIP in a future blog post.
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