September 26, 2017
Can I finance my FHA loan Up Front Mortgage Insurance Premium (UFMIP)? And how does it affect my mortgage loan? These are questions many ask, unsure of whether FHA mortgage loan limits include the UFMIP and how they are allowed to pay.
FHA Up Front Mortgage Insurance Premiums May Be Financed
FHA loan rules in HUD 4000.1, the FHA loan handbook, state clearly that FHA UFMIP may be financed. It will be included in the final loan amount at closing time.
UFMIP Must Be Financed Or Paid In Cash
HUD 4000.1 instructs the lender to either collect the Up Front Mortgage Insurance Premium in cash at closing time, or have it included into the loan amount. However, the borrower must pay 100% either way-you cannot finance half the amount and pay the other half in cash.
There must be payment in full either financed or in cash. No other ratio (60/40, 70/30) can be used, only 100% payment in one lump sum.
UFMIP Is An Add-On To The Loan
What does this mean? It means that your FHA mortgage loan is calculated and approved prior to adding the UFMIP to the final amount of the mortgage.
You won’t be penalized for this added amount, meaning if you have a hypothetical loan limit of X amount of dollars, that limit does not include the added cost of UFMIP. You won’t have a reduction in your ability to borrow if you choose to finance your Up Front Mortgage Insurance Premium.
The Actual FHA Loan Rule Covering This Issue
HUD 4000.1 instructs the lender:
“Unless otherwise stated in this section (Origination through Post-Closing/Endorsement), restrictions to mortgage amounts and LTVs are based upon the amount prior to the financing of the Upfront Mortgage Insurance Premium (UFMIP) (Base Loan Amount). The total mortgage amount may be increased by the financed UFMIP amount…” (emphasis ours)
UFMIP Is Not Part Of The Down Payment
It is important to note that this rule is not in reference to the borrower’s loan-to-value ratio, which is the amount of the required down payment for the transaction. The loan-to-value ratio is calculated independently of any Up Front Mortgage Insurance Premium, and furthermore UFMIP cannot be used as part of the borrower’s down payment.
Down payment money is a completely separate issue. Mortgage insurance is considered part of the closing costs of the loan, and closing costs are expressly forbidden to be used when calculating the borrower’s down payment amount.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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