FHA Funding Fee
The FHA funding fee consists of the Upfront Mortgage Insurance Premium (UFMIP) and the Mortgage Insurance Premium (MIP). This fee is required when entering into a mortgage agreement backed by the FHA, providing protection for lenders against potential losses.
The UFMIP is a one-time payment equal to 2.25 percent of the mortgage amount, which is paid at the time the loan is secured. The MIP, on the other hand, is incorporated into your monthly payment and is held in an escrow account. This insurance premium varies based on the total loan amount, the length of the mortgage term, and the size of your down payment. The FHA does allow borrowers to finance these funding fees by including them in the total mortgage amount.
It’s important to note that the FHA acts as a mortgage insurer rather than a mortgage lender. The funding fees paid by borrowers contribute to the insurance that supports FHA-approved lenders. If a borrower defaults on their loan, the lender can submit a claim to the FHA and receive reimbursement from the funds collected through these funding fees. This system helps maintain the stability and availability of FHA-backed loans for eligible borrowers.
