FHA LOANS CONTINUED

The Ins & Outs of FHA Loans – Part III        

 

 Did you know that FHA does not fund loans directly?     

    

 

The Federal Housing Administration only guarantees the loan from default but does not provide the money to fund the loan, the lender does.  In order to help mitigate their losses, FHA charges two separate fees:

 

1. Up-front mortgage insurance premium (UFMIP)
2. Monthly mortgage insurance (monthly MI)   

 

             

               

The Difference Between the Two:

•         The up-front mortgage insurance premium (UFMIP)

• 1.75% of the base loan amount

-       Paid only once, at time of closing

-       Can be added to the loan amount or paid as a cost

•        The Monthly renewal mortgage insurance (monthly MI)

-       .55% of the loan amount

-       Paid monthly

-       Paid for the first 5 years of the loan

 

 

For example:  

 

The up-front mortgage insurance premium of 1.75%, for a loan amount of $300,000 would cost $5,250.  This charge can either be paid as a closing cost or financed back into the loan.     

    

With the same $300,000 loan at an interest rate of 5.00%, the monthly amortized payment would be $1,610.46. The additional .55% monthly MI premium would add $137.50 to the payment.