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Up-front mortgage insurance (UFMI) is a form of insurance that protects and indemnifies lenders in the event of a borrower's default on a Federal Housing Administration (FHA) loan. It is an insurance premium that is collected at closing on the loan and is in addition to the ongoing mortgage insurance premium (MPI) payments on the loan. This type of insurance is necessary to protect the lender and ensure they have the financial means to recover if the borrower defaults on their mortgage payments.
The up-front mortgage insurance premium can either be collected at the time of loan closing or rolled into the loan payments. The amount of the premium is a flat fee of 1.75% of the loan amount. This premium is paid directly to the Department of Housing and Urban Development (HUD) to support the federal government's oversight of FHA and to guarantee the mortgage insurance.
Typically, a mortgage with UFMI has lower fees overall and requires little to no money down. This can be beneficial to borrowers who have less money to put down on their home or who may have a lower credit score. Not all FHA mortgages require UFMI, but the vast majority of them do.
For borrowers who default on their mortgage, the lender may recover the balance owed on the loan through the UFMI fund. This protects the lender in case of default, as it allows them to recoup the costs associated with underwriting and servicing the loan as well as any unpaid balance.
In summary, up-front mortgage insurance is required on almost all FHA loans and serves as an additional layer of protection for the lender. The insurance premium of 1.75% must either be paid at closing or rolled into the loan payments. It helps to cover the costs associated with default and assure the lender that, should the borrower default on their mortgage, the lender will be able to recover their losses.
The up-front mortgage insurance premium can either be collected at the time of loan closing or rolled into the loan payments. The amount of the premium is a flat fee of 1.75% of the loan amount. This premium is paid directly to the Department of Housing and Urban Development (HUD) to support the federal government's oversight of FHA and to guarantee the mortgage insurance.
Typically, a mortgage with UFMI has lower fees overall and requires little to no money down. This can be beneficial to borrowers who have less money to put down on their home or who may have a lower credit score. Not all FHA mortgages require UFMI, but the vast majority of them do.
For borrowers who default on their mortgage, the lender may recover the balance owed on the loan through the UFMI fund. This protects the lender in case of default, as it allows them to recoup the costs associated with underwriting and servicing the loan as well as any unpaid balance.
In summary, up-front mortgage insurance is required on almost all FHA loans and serves as an additional layer of protection for the lender. The insurance premium of 1.75% must either be paid at closing or rolled into the loan payments. It helps to cover the costs associated with default and assure the lender that, should the borrower default on their mortgage, the lender will be able to recover their losses.