Since we have gotten several questions lately about FHA loan rules regarding funding fees including the FHA Mortgage Insurance Premiums (MIP) and Up Front Mortgage Insurance Premiums (UFMIP), it seemed like a good idea to discuss the rules in HUD 4000.1 regarding these issues, starting with the UFMIP.
For FHA single-family forward mortgages, the rules for the Up Front Mortgage Insurance Premium are found on HUD 4000.1 on page 155. It begins with the explanation of both UFMIP and MIP:
“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.”
Some borrowers have questions about whether or not you can finance the UFMIP and how doing so might affect the amount of the mortgage loan. According to page 155:
“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.”
The UFMIP must either be included in the mortgage loan in its entirety, or paid in its entirety in cash. How is the UFMIP determined?
“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.”
What exactly ARE basis points? We turn to an article at TheStreet.com for the answer here:
“A basis point is a hundredth of a percentage point, or 0.01%”. The article uses bond yields to explain how basis points work. “For example, say that a bond’s price drops, causing its yield to rise from 6% to 6.10%. One would say its yield rose by 10 basis points. Another example: Say one bond has a yield of 6.5% and another has a yield of 6.75%. The difference can be expressed as 25 basis points.”
Some borrowers want to know if they might be entitled to a refund of the Up Front Mortgage Insurance Premium when refinancing, but FHA loan rules in HUD 4000.1 state, “The UFMIP is not refundable, except in connection with the refinancing to a new FHA-insured Mortgage.” Such refunds work as described on page 396 of HUD 4000.1:
“If the Borrower is refinancing their current FHA-insured Mortgage to another FHA- insured Mortgage within 3 years, a refund credit is applied to reduce the amount of the Upfront Mortgage Insurance Premium (UFMIP) paid on the refinanced Mortgage”. Speak to your loan officer about how much refund might be applicable for your specific circumstances.
The Mortgage Insurance Premium is a different payment, described in FHA loan rules as follows: ”
The periodic MIP is an annual MIP that is payable monthly. The amount of the annual MIP is based on the LTV ratio, Base Loan Amount and the term of the Mortgage.”
As you can see from this blog post, there is no one fixed dollar amount for either UFMIP or MIP. All loans are different, and to get the dollar amount of the payment required in this area you will need to discuss the calculations with your lender.