FHA Mortgage Insurance, MIP, Up front MIP, MMI and Mortgage Insurance Information
The Federal Housing Administration funds its lending program by charging FHA Home Mortgage insurance on ALL FHA loans. FHA mortgage insurance or MIP is required on all FHA home loans regardless of credit score, loan to value or property location and paid by the borrower in 2 forms.
Up front Mortgage Insurance - MIP - UFMIP
Up front mortgage insurance is paid by the borrower of a FHA home loan and is paid at the time of closing. The process by which Up front MIP may be charged is sometimes a little obscure so allow us to clarify. Up front mortgage insurance, which is required on ALL FHA home loans, is normally 1.75% of the base loan amount which you are borrowing. So if your BASE loan amount is $100,000 including closing costs, your TOTAL loan amount will go up to 101,750 to account for the additional up front MIP. Thus the MIP is financed into the loan amount and you do not have to pay it out of your pocket. It is important to know that although your loan amount increases due to UFMIP, your monthly payment will be based off of the total loan amount but this will not affect your qualifying loan to value ratio.
Monthly Mortgage Insurance - MMI
Along with the one time fee of 1.75% for Up front mortgage insurance (UFMIP) - borrowers of a FHA home loan are required to pay a monthly mortgage insurance premium as well. This is not to be confused with PMI, the insurance associate with a conventional loan above 80% loan to value. This additional monthly fee is required on ALL FHA home loans and is only paid for a few years then drops off. The monthly cost for mortgage insurance would be in addition to your typical monthly mortgage expenses like real estate taxes, homeowners insurance and the monthly cost of the loan. To figure out your monthly mortgage insurance (MIP or MMI) follow this simple equation:
