Mortgage Definition: UFMIP (Up Front Mortgage Insurance Premium)

Today’s Mortgage Definition is: UFMIP

Main Entry: u · f · m · i · p
Pronunciation: : \ˈyü ·ˈef · ˈem · ˈī · ˈpē \

UFMIP and MI – A Simple Definition:
UFMIP stands for Up Front Mortgage Insurance Premium and anyone who takes out an FHA loan is required to pay the premium. This lump sum is allowed to be financed into the loan, so you don’t have to actually write a check for it at closing – but make no mistake, you are still paying it. MI stands for Mortgage Insurance (in the case of FHA loans, this is the amount of money that you pay each month) and MI is diffferent than UFMIP. With FHA loans, you are required to pay both UFMIP and MI.

UFMIP and MI – An Expanded Definition:
Many people are aware that FHA doesn’t actually loan you money when you get an FHA loan, they only insure your loan. The insurance does the borrower no good, the insurance is in the event of a default, then FHA agrees to pay the lender, not the borrower.

And for this insurance guarantee (having an FHA insured loan), the person who wants an FHA loan gets to make insurance premium payments in the form of UFMIP and MI.

For years, HUD has required that anyone getting an FHA loan pay both UFMIP and MI so that is nothing new. It is also somewhat common (every couple of years or so) for HUD to adjust either the UFMIP requirement and/or the MI requirement which makes FHA loans either slightly more or less expensive depending on the adjustment.

Recently, HUD has made an announcement that the MI requirement will rise from .55% (annually) of the loan amount to .85 – .9% and has lowered the UFMIP requirement from 2.25%, down to 1%.

Some simple calculations of what UFMIP and MI requirements are going to be effective September 7, 2010 on a $200,000 mortgage:

UFMIP = $2,000
MI = $1,800 / year paid monthly ($150/month)
The net change is that on an overall basis, it is going to be more expensive to get an FHA loan. The UFMIP requirements went down, but the monthly MI increased and the overall effect is that your monthly mortgage payment will now be higher with FHA loans due to higher mortgage insurance costs.

Contact The Mortgage Mark with any questions!

http://www.themortgagemark.com

mwilkins@capitalfmc.com