What Is an Upfront Mortgage Insurance Premium (UFMIP)?

An in advance home mortgage insurance premium (UFMIP) is a one-time charge collected when you close on your Federal Real Estate Administration (FHA) loan.

Key Takeaways
An upfront mortgage insurance coverage premium (UFMIP) is a one-time payment due when closing on a home that is funded with an FHA home loan.
The UFMIP is 1.75% of the base loan amount.
Provided the lower down-payment requirements for an FHA loan, UFMIP helps protect your loan provider in case you’re not able to repay your home loan.
You’ll also be needed to pay an annual mortgage insurance coverage premium (AMIP), which is a monthly payment that varies between 0.45% and 1.05% of the total loan quantity.
Definition and Examples of an Upfront Mortgage Insurance Premium (UFMIP).
A UFMIP is an additional fee you’ll pay to your lender when closing on your FHA home mortgage. This one-time payment helps protect your lending institution if you’re unable to repay your loan. The UFMIP is 1.75% of the base loan amount (the part of the home’s rate you will be funding with a mortgage) and may be rolled into your month-to-month mortgage payments.1.
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Acronym: UFMIP.
How UFMIPs Work.
If you were to secure a standard home mortgage, you may pay as much as 20% or more as your down payment.2 This type of expenditure may be out of reach for some homebuyers, so FHA loans exist to assist debtors who otherwise can’t afford a mortgage.

Customers are just required to make a down payment of just 3.5% of the home’s purchase price with FHA loans (depending on their credit report). Since of the low down payment, the loan is considered riskier for lenders.3.

If you wanted to get an FHA loan, you ‘d use through a lender, and the FHA would ensure the loan. At closing, you ‘d pay a UFMIP of 1.75% of your mortgage on top of the down payment to the lending institution.1 The UFMIP funds are then paid to HUD by your loan provider. They help safeguard the lender and the FHA in case you default on your mortgage.

For example, state you want to purchase a home that costs $300,000. You are authorized for an FHA loan and are expected to make a down payment of a minimum of 3.5% of the purchase cost, which is $10,500. When you close on the home, you’ll also need to pay a UFMIP of 1.75% of the base loan amount, which is the part of your home you’ll finance through the home mortgage. If the home is $300,000, and you’ll put down $10,500, you’ll pay 1.75% on $289,500, which is $5,066.25. This implies you require a minimum of $15,566.25 in cash prepared at closing (plus any money you’ll require for other charges).
Pros Explained.
Makes it simpler to get approved for a mortgage: Because of safeguards like UFMIP, the federal government has the ability to back FHA loans. This provides more alternatives to debtors who would usually have a tough time qualifying for a traditional home mortgage.
Lower down-payment requirements: The UFMIP is 1.75% of the base loan amount. While it is an additional cost, the deposit is lower than a traditional mortgage, which may still make this more budget-friendly than your other home loan alternatives.
Cons Explained.
Additional upfront cost required: When you close on your home, you’ll be required to make a one-time payment of 1.75% of the mortgage.1 This cost remains in addition to other closing expenses and expenses that feature purchasing a home. UFMIP drives up the total cost of purchasing a home, which can be tough for borrowers if they have limited funds.
Still needed to pay a yearly home mortgage insurance coverage premium: The UFMIP isn’t the only home loan insurance coverage fee you’ll require to pay; there’s still a yearly one (more on that below).
Upfront Mortgage Insurance Premium vs. Annual Mortgage Insurance Premium.
In addition to paying UFMIP, FHA customers are required to pay an annual mortgage insurance premium (AMIP). The primary difference between the two types of insurance premiums is that the UFMIP is a one-time payment due at closing, whereas the AMIP is an ongoing month-to-month expense.

The AMIP is determined annually and paid on a month-to-month basis. The exact expense of the AMIP differs depending on the loan quantity, whether you took out a 15-year or 30-year home loan, and your current loan-to-value (LTV) ratio. The total expense of the AMIP varies in between 0.45% and 1.05%.
How To Avoid Paying UFMIP.
If you wish to prevent paying the extra expense that is a UFMIP, you’ll require to look for a traditional mortgage that is not backed by the FHA. This suggests making a bigger deposit, in some cases 20% or more of the home’s purchase price. However, doing so will also assist you prevent paying AMIP, which can accumulate throughout your loan term.

The Reinvented Mortgage Process.
If you’re acquiring a home, re-financing the one you have or want to find out more about how home loans work, Rocket Mortgage wishes to make certain you have all the tools you require. That’s why they offer technology, education and customer support to help you with every action of the home loan procedure, from applying, to getting authorized, to managing your loan. Discover more today.

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