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.