The upfront mortgage insurance premium (UFMIP) is a one-time FHA charge equal to 1.75% of the base loan amount. Almost every FHA buyer finances it, which means it's added to the loan balance instead of paid in cash at closing. It's separate from the annual MIP that shows up in the monthly payment.
How the 1.75% is figured
FHA applies 1.75% to the base loan, which is the price minus your down payment. The rate is the same at every credit score and every down payment, so a 580 borrower and a 760 borrower pay identical premiums on the same loan amount. On FHA 100% financing it's charged on the 96.5% first mortgage only, and the down payment assistance second carries no upfront premium.
Financing it compared with paying it at closing
Take a $360,000 home with 3.5% down. The base loan is $347,400, and 1.75% of that is $6,079.50.
| Premium financed | Premium paid at closing | |
|---|---|---|
| Cash for the premium at closing | $0 | $6,079.50 |
| Total loan | $353,479.50 | $347,400.00 |
| Principal and interest at a 5.75% rate | $2,062.81 | $2,027.33 |
| Difference | $35.48 a month more |
Financing costs $35.48 a month and keeps $6,079.50 in your account. For most first-time buyers that cash does more work as closing costs, reserves or a cushion after move-in.
The seller can also cover it. FHA lets a seller pay up to 6% of the price toward closing costs, prepaids, discount points and the upfront premium. On this $360,000 home that limit is $21,600, so a seller credit can absorb the full $6,079.50 with room left for other costs, and the loan stays at $347,400.
When part of the premium is credited back
If you refinance into a new FHA loan within three years, HUD credits part of the original upfront premium toward the new one. The credit is largest in the first months after closing and runs out after month 36. A refinance into a Conventional loan gets no credit, though it also ends FHA's annual premium.
VA and USDA have their own upfront charges: the VA funding fee, 2.15% on a first-use purchase with less than 5% down, and the USDA guarantee fee of 1.00%. Both can be financed the same way.
The cash to close calculator shows how a seller credit toward the premium changes your check at closing. To price both versions on a real home, call AAA Capital Funding at 888-601-8344.