Up-Front Mortgage Insurance - UFMI

FHA home loans: they can make wannabe homeowners’ dreams come true by allowing them to buy a house even if they don’t have an 800 credit score, or they can’t afford a full 20% down payment. But here’s a fun fact we’d like to share with everyone: FHA loans aren’t actually offered by the FHA. Nope. The FHA just insures the loan, protecting the actual lender against our potential default. But the FHA wants a little protection too, which is why we (the FHA-loan-having homeowner) are asked to pay something called “up-front mortgage insurance,” or “UFMI.”

UFMI is a premium that’s usually assessed as soon as we secure the loan for our new house, and for the most part, it’s equal to 1.5% of our loan amount. So if we took out a home loan for $250,000, we’d have to pay $3,750. Sounds like a lot, but it’s a lot less than a standard down payment would’ve been. Even if we end up paying the $3,750 plus a 3% down payment on the house (as some FHA loans require), that’s still a whole lot less than a 20% down payment.

The bad news is that we have to pay our UFMI in full before we close on the house (though occasionally we can just get it added to the mortgage itself). The better news is that, in some cases, we can get some of it back if we end up selling the house within a certain amount of time.