FHA Upfront Mortgage Insurance Premiums (UFMIP) in California

In a previous blog post, we talked about the different types of mortgage insurance that are required for most FHA loans. Today, we’ll zero in on the upfront mortgage insurance premium, from a California home buyer’s perspective.

The Federal Housing Administration (FHA) uses these fees to cover insurance claims from lenders. Without mortgage insurance premiums, the FHA loan program as we know it would cease to exist. They’re an important revenue source for the agency. But they do bring an additional cost into the picture, from a borrower’s standpoint.

Here’s an in-depth explanation of FHA upfront mortgage insurance premiums in California, updated for 2021.

FHA Upfront Mortgage Insurance Premiums

The FHA loan program has been helping home buyers become homeowners for decades. Before this program came along, people typically had to make much larger down payments when buying a house. That put homeownership out of reach for the average American. But the FHA program (and other low-down-payment financing options) changed all of that.

The FHA loan program allows California home buyers to purchase a house with as little as 3.5% down. This feature removes what would otherwise be a substantial roadblock for a lot of borrowers. This program basically shortens the waiting period for home buyers, by allowing them to buy a property with less money down.

That’s the primary advantage of this program. One of the disadvantages is that borrowers who use an FHA loan in California have to pay mortgage insurance premiums.

There are actually two types of premiums paid by the borrower:

• A one-time Upfront Mortgage Insurance Premium (UFMIP)
• An annual insurance premium, also referred to as the periodic or monthly MIP

Despite their names, both of these can be rolled into the mortgage loan and paid on a monthly basis. The major difference between them is that the upfront MIP is a one-time charge, while the annual MIP is a recurring charge that renews each year.

But let’s get back to the upfront premium in particular, the main focus of this article.

How Much Is the UFMIP in California?

In California, the upfront mortgage insurance premium for FHA loans typically equals 1.75% of the loan amount. You might also see the cost expressed as “175 basis points.” They both mean the same thing. (A basis point is one hundredth of a percent. So 175 basis points equals 1.75%.)

For example, here’s the FHA upfront insurance premium for various loan sizes:

To do the math: Just multiply the loan amount by .0175 (the decimal form of 1.75%).

For more information on the upfront mortgage insurance premium assigned to FHA loans in California, we can look to HUD Handbook 4000.1. Also known as the “Single Family Housing Policy Handbook,” this 1,000-plus-page guide is the official policy manual for FHA-insured mortgage loans in California and nationwide.

According to that handbook:

“FHA collects a one-time Upfront Mortgage Insurance Premium (UFMIP) and an annual insurance premium, also referred to as the periodic or monthly MIP, which is collected in monthly installments.”

The handbook goes on to state that the “UFMIP charged for all amortization terms is 175 Basis Points (bps), unless otherwise stated in the applicable Programs and Products or in the MIP chart.”

The “amortization terms” part of that quote refers to the length of the loan. Whether you’re using a 15-year or a 30-year FHA loan in California, the upfront mortgage insurance premium is the same. It equals 1.75% of the amount being borrowed.

It’s Non-Refundable in Most Home-Buying Scenarios

In a typical home-buying scenario, where an FHA loan is used, the UFMIP is non-refundable. But there are some refinancing situations where it can be refunded.

HUD Handbook 4000.1 explains that a portion of the upfront mortgage insurance premium can be refunded if the borrower is refinancing an existing FHA-insured home loan into a new one, within three years. But we’re getting into the policy weeds here.

Here’s the bottom line for borrowers:

If you use an FHA loan to buy a home in California, an upfront mortgage insurance premium will be applied. In that scenario, you can expect to pay 1.75% of the loan amount. Despite the “upfront” name, this fee can be rolled into the mortgage and paid over time. Financing it will increase the size of your monthly payments, but only by a modest amount.

Questions? Bridgepoint Funding has been helping Bay Area home buyers and homeowners for nearly 20 years. We offer a full range of financing options, including both FHA and conventional loans. Please contact us if you’d like to explore your mortgage options.