FHA home loans do not, as conventional mortgages often do (based on LTV), require third-party private mortgage insurance, sometimes known as PMI.
Instead, FHA mortgages require mortgage insurance premiums paid as part of your monthly mortgage payment.
There is an Up-Front Mortgage Insurance Premium (UFMIP) that is due at closing time in cash, which may also be financed in its’ entirety should the borrower wish to do so. Then the Mortgage Insurance Premiums (MIP) are included in the monthly payment.
FHA home loan rules address mortgage insurance issues in HUD 4000.1, which states, “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 means your loan limit is not affected or lowered thanks to the UFMIP-you won’t have less to spend on your new home via the loan amount requested.
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.”
When is a refund due? Only in cases where the Borrower is refinancing their current FHA-insured Mortgage to another FHA- insured Mortgage “within 3 years” of the original mortgage loan.
In such cases, “a refund credit is applied to reduce the amount of the Upfront Mortgage Insurance Premium (UFMIP) paid on the refinanced Mortgage”. Note that the refund is only offered for FHA-to-FHA refinance transactions.
HUD 4000.1 says of these circumstances, “The UFMIP is not refundable, except in connection with the refinancing to a new FHA-insured Mortgage”.
If you have an existing FHA mortgage and plan to refinance, ask your loan officer if you may be due a refund of the UFMIP.
In general Mortgage Insurance Premiums will last either 11 years or the lifetime of the mortgage depending on a variety of factors including the LTV. The Up Front Mortgage Insurance Premium and MIP payments are a standard part of FHA home loans and the “11 years or lifetime of the loan” rules apply to most FHA forward mortgages issued today.