April 27, 2023
If you are a first-time borrower with questions regarding funding fees like the FHA Mortgage Insurance Premiums (MIP) and Up Front Mortgage Insurance Premiums (UFMIP), you are not alone.
Many newcomers to the home loan process are confused by these fees (at first) but there are simple answers for most of these borrower questions.
For FHA Single-Family mortgages, the rules for the Up Front Mortgage Insurance Premium are found in HUD 4000.1, starting 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 wonder if you can finance the UFMIP and how doing so might affect the amount of the mortgage loan. The good news is you can finance the upfront premium, but you cannot make a partial payment and finance the rest.
“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? An article at TheStreet.com notes:
“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 say, “The UFMIP is not refundable, except in connection with the refinancing to a new FHA-insured Mortgage.”
How do these refunds work? In cases where the borrower is refinancing their current FHA-insured Mortgage to another FHA- insured Mortgage within three 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 apply to 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 FHA adds that the amount of the annual MIP is based on the LTV ratio, Base Loan Amount and the term of the Mortgage.
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.