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FHA Mortgage Insurance Overview

For: FHA Mortgage Insurance Premiums Rates – Click Here

Apply for an FHA Mortgage

The FHA Mortgage Insurance Premiums, mostly commonly referred to as MIP, are charged by HUD to protect investors against default. Using these premiums paid into a fund, HUD Guarantees the performance of every FHA Loan and protects a percentage of the lender’s investment. In return, this mandatory premium enables borrowers who might not otherwise fit within Freddie/Fannie conventional guidelines, to receive funding for the purpose of Buying A Home or Refinancing at conventional Mortgage Rates.

The net affect of the premiums on your loan are not that much different than the more traditional PMI premiums charged on a conventional mortgage. If you compare them, you’ll find that the monthly MIP payment with the FHA mortgage is typically less than half the cost of PMI. What many borrowers are usually concerned with is the upfront MIP which is added into the loan at financing.

FHA has several types of Mortgage Insurance. Depending on the type of property and the type of loan transaction, one or more of these insurance types may apply to your situation.

Mutual Mortgage Insurance (MMI):

Applies to 1-4 unit houses and eligible PUD’s for both Fixed Rate and ARM transactions. (HUD program codes: 203b (fixed rate) and 251 (ARM). Within this MMI fund, there are 2 kinds of mortgage insurance that may apply to the transaction: Upfront MIP and Monthly MIP:

  • Upfront mortgage Insurance (UFMIP) is the one time mortgage insurance premium collected at closing and is sent to HUD to insure the loan. Currently, UFMIP is calculated at 1.75 % X the base loan amount.
  • UFMIP may be paid in cash at closing and may be paid by the Borrower, Seller, or Lender.
  • UFMIP may be financed in the mortgage amount. If financed, the UFMIP is added to the base loan amount to arrive at a greater “total” loan amount.
  • The total loan amount is the principal amount that the Borrower repays in the mortgage payment each month. The total loan amount may exceed FHA’s statutory (locality) lending limit only by the amount of the financed UFMIP.
  • The Borrower may obtain a partial refund of the UFMIP if the loan is refinanced to another FHA mortgage within the first 3 years of term. If the loan is paid off and/or not refinanced to another FHA mortgage, there will be no refund of the UFMIP.

General Insurance Fund (GI):

  • Applies to 1 Unit Condo properties. Loan transaction may be for both Fixed rate and ARM products.
  • HUD program code is Section 234c (Condo-Fixed Rate) OR Section 251 (Condo- Arm Loan).
  • Monthly mortgage insurance is paid monthly in the Borrower’s mortgage payment. Servicer sends the payment to HUD on monthly basis.
  • Insurance is paid by Borrower for entire term of loan (regardless of the LTV).
  • Current monthly mortgage insurance is calculated by multiplying the base loan amount X .50% divided by 12.
  • Borrower receives NO refund on this type of insurance when the loan is paid in full.