What Is UFMIP and How Does It Affect Your FHA Loan?

The Upfront Mortgage Insurance Premium (UFMIP) is a one-time cost for borrowers obtaining an FHA-backed mortgage. It is a component of the overall mortgage insurance designed to support the FHA loan program.

What UFMIP Is

The Upfront Mortgage Insurance Premium (UFMIP) is a mandatory, one-time payment required for most FHA-insured loans. Its primary purpose is to protect the lender from financial loss if a borrower defaults on their mortgage payments. The FHA itself does not directly lend money; instead, it insures loans made by FHA-approved private lenders, which encourages these lenders to offer more accessible financing options, such as those with lower down payment requirements.

UFMIP is distinct from the annual mortgage insurance premium (MIP). Both UFMIP and the annual MIP contribute to the FHA’s Mutual Mortgage Insurance Fund, which serves as a reserve to cover claims from lenders in the event of borrower defaults. This insurance mechanism allows the FHA to back loans for a broader range of homebuyers, including those with lower credit scores or smaller down payments, who might not qualify for conventional loans. Unlike private mortgage insurance (PMI) on conventional loans, FHA mortgage insurance is typically required regardless of the down payment amount.

How UFMIP Is Calculated and Paid

UFMIP is calculated as a fixed percentage of the base loan amount. For most FHA loans, this premium is currently 1.75% of the loan’s principal. For example, on a $300,000 FHA loan, the UFMIP would amount to $5,250. This percentage is applied uniformly across eligible FHA loans, irrespective of the loan term or the loan-to-value (LTV) ratio.

Borrowers have two main options for paying the UFMIP. The premium can be paid in full as cash at the loan closing, becoming part of the overall closing costs. Alternatively, borrowers choose to finance the UFMIP by rolling it directly into the loan amount. When financed, the UFMIP increases the total loan balance, which in turn slightly increases the monthly mortgage payments over the life of the loan. Note that the UFMIP must be paid entirely through one of these methods; borrowers cannot split the payment between cash and financing.

When UFMIP Is Refundable or Removable

The Upfront Mortgage Insurance Premium (UFMIP) is generally not refundable, except when refinancing. A partial refund of UFMIP is available when refinancing an existing FHA loan into a new FHA loan. This refund is not provided as cash directly to the borrower but is instead applied as a credit towards the UFMIP due on the new FHA loan. To be eligible for this partial refund, the refinancing must occur within three years of the original FHA loan’s closing date. The amount of the refund decreases progressively each month until the three-year eligibility window closes.

The rules for canceling mortgage insurance premiums depend on the loan’s origination date. For FHA loans originated on or after June 3, 2013, the mortgage insurance premium generally remains for the life of the loan if the borrower’s initial down payment was less than 10% of the property’s value. If the down payment was 10% or more, the mortgage insurance premium can be canceled after 11 years. For FHA loans originated before June 3, 2013, the mortgage insurance premium could be automatically canceled once the loan-to-value (LTV) ratio reached 78% of the original appraised value, provided the premiums had been paid for at least five years for loan terms exceeding 15 years. The only way to eliminate the mortgage insurance obligation for loans where it is for the life of the loan is to either pay off the mortgage entirely or refinance into a different loan type, such as a conventional loan.