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It's important not to confuse PMI or private mortgage insurance with the FHA Mortgage Insurance Premium. Lenders require a monthly MIP payment (which is added into your mortgage bill) and an upfront payment called UFMIP which may either be financed or included in the loan amount. 

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FHA.com is a privately owned website, is not a government agency, and does not make loans.

What You Need to Know About the FHA Mortgage Insurance Premium

August 1, 2021

What You Need to Know About the FHA Mortgage Insurance Premium
The FHA mortgage insurance issue is a two-pronged one, at least for those who know they may have to pay premiums but don't know what their borrower options are for financing, down payment issues related to mortgage insurance, etc. 

It's important not to confuse PMI or private mortgage insurance with the FHA Mortgage Insurance Premium. 

These are not the same thing. PMI is not required on an FHA mortgage (it is required on conventional loans in typical cases unless you make a 20% down payment) but a mortgage insurance premium (and an up-front mortgage insurance premium paid at closing time) is definitely required.

Lenders require a monthly payment (which is added into your mortgage bill) and an upfront payment which may either be financed or included in the loan amount. 

FHA loans require UFMIP, or the Up-Front Mortgage Insurance Premium or UFMIP, and you can either pay it in full at closing time in cash or finance it into the loan amount.

Here is where knowing that bit of information about when and how to pay comes in--first-time home buyers are often surprised to learn that when their 30-year loans (or any other loan term for the FHA loan) require this payment in full no matter what method is chosen. 

You cannot partially pay the Up Front Mortgage Insurance Premium. In the same way you cannot finance certain fees, you are limited on how you can finance UFMIP.

This is one area of the home loan process some soon-to-be homeowners need to decide about early since it will affect your budget and how much you plan to spend on your mortgage up front.

Remember that it's not just the purchase price plus interest that you'll have to worry about, it's also fees and expenses like UFMIP.

And what is the biggest concern to the borrower in the planning stages of the loan in this area? Determining how much each option might cost you up front and over the long haul.

If you finance the UFMIP, you'll want to know how much that raises your mortgage payment when you add in property taxes and other factors. You will also want to know how much financing the UFMIP will cost you in extra interest over the lifetime of the mortgage. Yes, it’s a one-time expense, but rolling it into the loan amount means you will pay interest on the higher loan amount.

If you pay the fee up front instead, how much will that take out of your account that you could be using for a down payment or other costs? You'll want to make the most informed choice possible.

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