FHA Loans – FHA Mortgage Insurance
FHA does not fund home loans directly; rather, it provides a guarantee to the mortgage lender against default. There are two separate fees that HUD collects to provide a level of guarantee coverage to the lender:
- Up-front mortgage insurance premiums (UFMIP).
- Monthly renewal mortgage insurance (Monthly MI).
The up-front mortgage insurance premium, if required, will be 1.75% of the base loan amount. This can be added directly on top of the base loan amount to determine the total loan amount, regardless of initial loan amount or appraised value. MI can always be added to the maximum base mortgage amount.
Monthly mortgage insurance premiums for home loans closed after January 1, 2001, are refundable through the 5th year of the loan based on certain percentage increments. For example, if a borrower sells or refinances after having the property or the loan for 36 months, the borrower is entitled to a partial refund of the original FHA up-front mortgage insurance premiums.
The annual renewal premium, also referred to as the mutual mortgage insurance premium in the HUD mortgage insurance premium policy, is 0.85% per year divided by 12. This is included in the borrower’s monthly payment.