FHA Mortgage Insurance
There are two FHA mortgage insurance premiums on every FHA loan. An upfront premium is typically financed into the FHA loan. An annual premium is calculated each year and paid monthly as part of the FHA borrower's mortgage payment.
1. Upfront Mortgage Insurance Premium (UFMIP)
FHA UFMIP is the easiest to understand. It is a lump sum premium that is financed into your FHA loan. FHA UFMIP is 1.75% of your FHA loan amount. Consider the following:
- You are buying a $400,000 home and making the minimum 3.5% down payment ($14,000).
- Your BASE FHA loan amount is $386,000 ($400,000 - $14,000).
- FHA UFMIP is 1.75% of $386,000, which equals $6,755.
- Therefore, your FHA loan amount will be $386,000 + $6,755 = $392,755.
UFMIP does not impact your cash needed to close or savings required to obtain an FHA loan. FHA UFMIP is financed into your FHA loan.
2. Annual Mortgage Insurance Premium (FHA MIP)
FHA MIP is calculated annually, but you pay it monthly as part of your FHA mortgage payment. The FHA MIP rate is determined by your loan term and down payment (see table). Consider the following from our UFMIP example:
- FHA MIP rate is 0.55% using the FHA MIP table.
- Converting annual FHA MIP to monthly is done by multiplying the annual rate times the average principal balance over the next 12 months, backing out the UFMIP, and dividing the annual premium by 12. That's the complicated part.
- The end result is an FHA MIP payment of appoximately $176.
- Calculate an FHA loan payment.