Refinancing & Upfront Mortgage Insurance Premium (UFMIP): What You Need to Know

If you have an FHA loan, you’re likely familiar with Mortgage Insurance Premium (MIP). This protects the lender if you default on your loan. MIP comes in two forms: upfront (UFMIP) and annual.

The upfront MIP is a one-time fee paid at closing, typically 1.75% of the loan amount. The annual MIP is paid monthly as part of your mortgage payment. Can you refinance to get rid of or reduce the impact of that upfront MIP? The short answer is, generally, no, you can’t directly “get back” the UFMIP you paid when you initially took out the FHA loan. However, refinancing can achieve similar goals.

How Refinancing Works with UFMIP

When you refinance an FHA loan with another FHA loan within three years, you may be eligible for a partial refund or credit of your original UFMIP. This isn’t a direct refund, but rather a reduction in the UFMIP you’ll pay on the new loan. The amount of the reduction depends on how long you had the original loan. This is generally referred to as an FHA Streamline Refinance.

Here’s how it works: The lender calculates the amount of UFMIP you’re required to pay on the new loan. Then, they calculate the credit you’re entitled to based on the time elapsed since you originated your previous FHA loan. The credit is applied to the new UFMIP, reducing the amount you have to finance.

However, be aware: Even with the UFMIP credit, you will still be paying UFMIP on the refinanced loan. The ongoing annual MIP remains a factor as well.

Refinancing to a Conventional Loan

A more direct way to eliminate MIP altogether is to refinance from an FHA loan to a conventional loan. This is only possible if you’ve built up sufficient equity in your home, typically at least 20% of its appraised value. Conventional loans generally don’t require mortgage insurance once you reach that 20% equity threshold.

Benefits of refinancing to a conventional loan:

• Eliminates monthly MIP payments.
• Saves money over the long term.
• Gives you more flexibility in the future, as conventional loans have fewer restrictions.

Considerations:

• Requires a higher credit score than FHA loans.
• May require a larger down payment or equity stake.
• Closing costs will still apply.

Is Refinancing Right for You?

Before refinancing, carefully consider your goals and financial situation. Calculate the potential savings from eliminating or reducing MIP versus the costs associated with refinancing (appraisal fees, closing costs, etc.). Talk to a lender about your options and run the numbers to see if refinancing is the right move for you.

Factors to consider include:

• Current interest rates
• The amount of equity you have in your home
• Your credit score
• How long you plan to stay in the home

In conclusion, while you can’t directly get a refund of your original UFMIP, refinancing can be a strategy to reduce or eliminate the impact of MIP, either through an FHA Streamline Refinance or a shift to a conventional loan. Make sure to carefully weigh the costs and benefits before making a decision.