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FHA Funding Fee
|FHA Funding Fee refers to the cost of obtaining a mortgage loan from an FHA-approved lender. The Federal Housing Administration charges this fee in the form of insurance premiums, since the institution basically provides coverage for the amount you owe to a lender. This is a requirement with all kinds of FHA loans as you are offered low down payment and flexible underwriting options by the lender.
There are two kinds of FHA funding fees. The upfront funding fee, which is also known as upfront mortgage insurance premium or UFMIP, is due at the time of closing. UFMIP is calculated as a certain percentage of the loan amount. The MIP funding fee or simply MIP refers to the annual insurance premiums, a portion of which you pay each month along with your regular payments. There are certain rules regarding the termination of MIP depending upon the loan term and other conditions of the mortgage.
FHA Upfront Funding Fee
There are two options to pay FHA upfront funding fee. You can either pay in cash or get it financed into your mortgage. The fee is calculated as a certain percentage of the principal mortgage amount. Earlier, it used to be 1.75 % but now after a policy change in 2010 it has become 2.25 percent for most loan products.
A portion of the amount you pay as upfront funding fee may be available for a refund after you have paid off your mortgage. The refund amount is however dependant on when the loan was insured and when it was paid off. Moreover, your UFMIP may be tax deductible depending on the applicability of certain legislations in this regard.
FHA MIP Funding Fee
FHA MIP Funding Fee refers to the monthly premium that you pay along with your regular payments. The fee is calculated on a yearly basis following the steps laid out in HUD documents.
The first step to calculate the fee involves the determination of average outstanding balance. Then this balance is multiplied with annual MIP rate in the second step. If you have MIP financed into the mortgage you need to divide annual MIP by an Upfront MIP factor added to 1. In the fourth step divide by 12 to get monthly insurance premium and then multiply by 12 to finally obtain the annual MIP.
To see current annual and upfront MIP rates check Mortgagee Letter 10-28. There may be a change in the rates.
For more information and to see the complete funding fee table you can visit HUD website. You can also refer to HUD Handbook 4155 for more guidelines in this respect.