When getting an FHA loan, borrowers must pay an upfront fee called the upfront mortgage insurance premium (UFMIP). This one-time charge is 1.75% of your mortgage amount and goes towards offsetting default risk. This article explains what the FHA upfront premium is, when it’s required, and how much it costs on various loan types.
What is the FHA Upfront Mortgage Insurance Premium?
The upfront mortgage insurance premium is a fee that must be paid on most new FHA loans. It is 1.75% of the base loan amount, paid at closing. On a $200,000 mortgage, the upfront premium would be 1.75% x $200,000 = $3,500.
This fee insures the lender against losses if the borrower defaults. It is collected by FHA to help fund the mortgage insurance program Conventional loans only require similar upfront mortgage insurance if you put down less than 20%.
You can opt to pay the UFMIP in cash at closing or have it financed into the loan amount. Financing spreads out the costs but results in higher interest charges over the life of the loan.
When is the Upfront Premium Required?
The upfront mortgage insurance premium applies to most new FHA loans You will have to pay it when getting
- An FHA purchase mortgage
- An FHA cash-out refinance
- An FHA streamline refinance
FHA streamline refinances have a lower UFMIP rate of 0.01% of the loan amount.
Down payment size does not affect the rate. Even if you put down 20% or more, FHA loans still require the upfront mortgage insurance premium.
With conventional loans, you can usually avoid upfront mortgage insurance by making a 20% down payment.
Upfront Premium Rates for Different FHA Loans
While the upfront premium is generally 1.75%, here are the specific requirements for different FHA loan programs:
-
FHA purchase mortgage: 1.75% of the base loan amount
-
FHA cash-out refinance: 1.75%
-
FHA streamline refinance: 0.01%
-
FHA 203(k) rehab loan: 1.75% on the purchase/refinance amount, not the rehab costs
-
FHA reverse mortgage: No UFMIP required
The lower 0.01% rate for streamlines provides savings for borrowers refinancing existing FHA loans.
Paying the Upfront Mortgage Insurance Premium
You have two options for covering the upfront mortgage insurance premium:
Pay in cash at closing – This avoids financing the fee into your loan. But it increases your out-of-pocket costs.
Finance into mortgage – Rolling the fee into your loan amount spreads costs out over the loan term. But you pay interest on the premium for the life of the mortgage.
Paying cash saves on total interest paid over the years. But financing reduces the amount you need to bring to closing. Look at your full financial picture to choose the best option.
Tips for Minimizing the Upfront FHA Mortgage Insurance Premium
Since the UFMIP adds to costs, here are some tips for reducing it:
-
If possible, make a 20% down payment for a conventional loan to avoid it
-
Ask the seller to pay closing costs so you can pay the premium in cash
-
Apply credits if refinancing an existing FHA loan within 3 years
-
See if mortgage credit certificates in your state can offset some costs
-
Opt for a streamline refinance instead of a cash-out refinance
While you can’t entirely avoid the UFMIP on most FHA loans, shopping around for the best rates can help minimize its impact. Our team can explain your options.
The Upfront Premium vs. Monthly Mortgage Insurance
The upfront fee is different than monthly FHA mortgage insurance premiums. Upfront mortgage insurance is the 1.75% (or 0.01% for streamlines) fee paid at closing.
Monthly mortgage insurance is an annual 0.45% – 1.05% of your loan amount, paid with each mortgage payment. FHA loans require both types of mortgage insurance.
Next Steps for FHA Borrowers
As you move forward with an FHA loan, keep these key points in mind:
-
The upfront mortgage insurance premium is mandatory on most FHA loans.
-
You can opt to pay the 1.75% UFMIP in cash or finance it into your loan amount.
-
Streamline refinances have a lower 0.01% upfront premium rate.
-
Shop lenders to minimize closing costs and interest rates.
Our knowledgeable mortgage experts are here to answer any questions about FHA upfront mortgage insurance premiums. We’ll help you understand this requirement and keep costs as low as possible.
Tips to Avoid Paying Up-Front Mortgage Insurance (UFMI)
There are a few ways home buyers can avoid paying upfront mortgage insurance:
- Please apply for a conventional mortgage loan. Mortgage lenders will not require upfront mortgage insurance for conventional loans with an 80% loan-to-value ratio or less. This threshold applies to both original home purchases and refinancing.
- Make a 20% down payment. A mortgage lender will not take on as much risk when there is a 20% down payment or more on a home. This means that the buyer does not have to pay for mortgage insurance.
- Get a second mortgage. A 5% down payment would require a 15% second mortgage, and a 10% down payment would require a 10% second mortgage. This is to account for the annual payment that is needed to avoid mortgage insurance.
- Ask the seller for help. If the seller has equity, they may be willing to finance some of the purchase price with a second mortgage. If you combine your down payment with the seller’s second mortgage, you won’t have to pay for mortgage insurance.
There is no way to get your Upfront Mortgage Insurance (USMI) premium back unless you refinance to a new FHA-insured mortgage within three years of the original loan.
Special Considerations
A lot of people don’t know that if they pay their up-front mortgage insurance all at once and then sell their home within the first five to seven years, they can usually get their money back in parts. In other words, they may be entitled to a substantial refund even years after the fact.
For homeowners who got their FHA loan before June 2013, they can get their upfront mortgage insurance premium refunded and waived after five years. A homeowner must have 22% equity in the property, and all payments must have been made on time. For homeowners with FHA loans that were given out after June 2013, they need to refinance into a conventional loan and have a current loan-to-value ratio of 80% or more.
How to Eliminate Mortgage Insurance Premium from FHA Loans?
FAQ
How much is the FHA upfront mortgage insurance premium?
Do you pay mortgage insurance premium up front?
Do FHA loans require a mortgage insurance premium?
What is the upfront payment for mortgage insurance on an FHA loan?
What is an FHA mortgage insurance premium (MIP)?
Compared to other mortgage options, FHA loans typically have more lenient standards for borrowers, like credit score and down payment requirements. Unlike other types of loans, FHA loans require borrowers to pay a mortgage insurance premium (MIP). An FHA MIP is an additional payment you make to secure the mortgage loan.
What is an upfront mortgage insurance premium (UFMIP)?
Was this page helpful? An upfront mortgage insurance premium (UFMIP) is a one-time fee required on most FHA loans. It helps protect your lender in the event that you default on your mortgage.
Do you pay upfront mortgage premium if you get an FHA loan?
When you choose to get an FHA loan, you’ll pay an upfront mortgage premium (UFMIP), which amounts to 1.75% of your base loan amount. You can pay the premium when you close on your FHA loan, or you can finance it into your loan amount. UFMIP protects the lender in case you default on your mortgage payments.
What are FHA mortgage insurance premiums?
FHA mortgage insurance premiums (MIP) are additional fees FHA loan borrowers pay, both upfront and over the course of the mortgage term. These premiums are required of all FHA borrowers. Most FHA borrowers need to pay them for the duration of the 30- or 15-year loan term. FHA MIP doesn’t protect the borrower, however.