February 26, 2016
When you purchase a home using an FHA mortgage, you’ll be required to pay an Up Front Mortgage Insurance Premium (UFMIP) and monthly mortgage insurance premium (MIP). The rules governing this mortgage insurance are found in HUD 4000.1 and it’s important to know them before you start budgeting and planning for your new mortgage.
FHA loan rules covering this insurance begin by defining terms. “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.”
One thing important for borrowers to know is that the FHA does not consider these payments to be part of the mortgage guaranty limit–this is a fee assessed after those limits are calculated, even though the Up Front Mortgage Insurance Premium can be financed.
“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.”
UFMIP is not a fixed charge or a set dollar amount. It’s calculated based on the loan amount. “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.” HUD 4000.1 also says that the borrower must choose whether to pay up front (out-of-pocket) or have the UFMIP financed–there’s no in-between. “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.”
Furthermore, “…if the UFMIP is financed into the Mortgage, the entire amount is to be financed except for any amount less than $1.00. The mortgage amount must be rounded down to the nearest whole dollar amount, regardless of whether the UFMIP is financed or paid in cash.”
In some cases a UFMIP refund may be available if the borrower is applying for a refinance loan. “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, according to the refund schedule” found in HUD 4000.1
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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