A reader asks, “I want to purchase at home for 141,000 and I am paying the 3.5 down payment which totals it 136,065. How much will I pay in Up Front mortgage and annually MIP. If I pay the UFMIP in closing will it still be added into to total amount loan?”
Let’s begin with a few basics. UFMIP stands for Up Front Mortgage Insurance Premium, which is required as one of the closing costs of an FHA mortgage loan.
According to HUD 4000.1, “Most FHA mortgage insurance programs require the payment of UFMIP, which may be financed into the Mortgage. The UFMIP is not considered when calculating the area-based Nationwide Mortgage Limits and LTV limits.”
That last sentence means that your loan limit is unaffected by the amount of the up front mortgage insurance premium, which is calculated and added after those limits are applied. HUD 4000.1 adds, “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” found on page 838 of HUD 4000.1, which you can download from the FHA official site.
When it comes to paying the UFMIP, the borrower has the option to either finance it into the loan or pay the UFMIP in cash at closing time. HUD 4000.1 states, “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.”
Borrowers will need to have a conversation with their loan officers to discuss the actual amount of the UFMIP calculation and the amount of the mortgage insurance premium (MIP) to be paid over the lifetime of the loan-we can’t speculate as to the actual amounts you may be required to pay as circumstances, lender standards, state law, and other factors may apply to specific circumstances.
It is very important to factor in the amount of the UFMIP in the planning stages of the loan. If you are planning to pay up front, you’ll need to know how much to save for, and if you plan on financing the amount you’ll want to know how that affects your mortgage payment monthly and the cost of financing it over the lifetime of the loan.
You may be able to get a rough estimate from a lender based on the proposed amount of the home loan. While it may not be possible that a loan officer can give you a precise amount prior to filling out loan paperwork, you may be able to determine what is customary for your price range.