FHA and Mortgage Insurance — What is the UFMIP?
FHA loans help to make real estate more affordable by allowing you to obtain a loan with a relatively small down payment. In today’s market, you are required to put a substantial amount of money down for conventional financing, whereas you may be able to get an FHA loan with only 3% down. Because FHA loans are insured by the Federal Housing Authority, they are strictly regulated by them as well.
But the Federal Housing Authority won’t insure your FHA loan for nothing. That’s where the Up Front Mortgage Insurance Premium (the UFMIP) comes in. The UFMIP is similar to regular mortgage insurance — it’s insurance you, as the borrower, pay for to cover the balance of your mortgage in case you default.
However, the UFMIP is a bit more hefty. Typically, your premium will be about 1.75% of your loan amount (note the FHA changes the premium periodically — last summer it was only 1.50%). In other words, if you are borrowing $200,000 today, your UFMIP will be $3500. You will pay the premium at closing, and you will also pay monthly premiums with your mortgage payment.
When buying a home with an FHA loan, keep the UFMIP in mind. The cost is considerable. Then again, you also get to buy your home — and without the FHA and their required UFMIP payment, you may be unable to buy one otherwise.
How does UFMIP work under an FHA Streamline Refinance with no appraisal? Do you have to pay this fee again? Why do you get a refund on your UFMIP that was paid out the first time?
It is my understanding that if you complete an FHA refinance you will be charged a UFMIP fee of 1.50%. However, you will also receive a credit for a portion of your previously paid UFMIP (because you refinanced before the term of the loan expired). In order to determine how much credit you will get, you need to speak to your lender; your lender should be able to calculate this for you based on how many months you are into your mortgage.
If a buyer puts down 5% and finances the UFMIP, I’m told that the lender as well as FHA considers the base LTV to be 95%, and the loan is underwritten and approved as such, however the LTV would appear to be 96.75% from someone who doesn’t understand FHA financing, correct?
In response to your question, it is my understanding that the UFMIP fee is factored into the loan and is approved at 95%. Even though the loan is underwritten at 95% LTV, the actual LTV is 95% plus the UFMIP. However, to get the best answer to your question, you should contact a mortgage lender proficient in FHA lending.