Up-Front Mortgage Insurance (UFMI)

Up-front mortgage insurance (UFMI) is a type of mortgage insurance that is paid in full at the time of closing. It is typically required for borrowers with a down payment of less than 20% of the purchase price of the home. UFMI protects the lender in the event that the borrower defaults on the loan and the home is foreclosed upon.

The amount of UFMI that is required is based on the loan-to-value ratio (LTV), which is the ratio of the loan amount to the appraised value of the home. For example, if a borrower has a loan amount of $200,000 and the appraised value of the home is $250,000, the LTV is 80%. The borrower would be required to pay UFMI of 1.8% of the loan amount, or $3,600.

UFMI is typically a one-time fee, but there are some lenders that offer UFMI in monthly installments. The monthly cost of UFMI will vary depending on the loan amount, the LTV, and the interest rate.

There are a few advantages to UFMI. First, it can help borrowers to qualify for a mortgage with a lower down payment. Second, it can protect the lender in the event of a default. However, UFMI also has some disadvantages. First, it is a significant upfront cost that can make it difficult for borrowers to afford a home. Second, UFMI does not protect the borrower in the event of a default.

Ultimately, the decision of whether or not to purchase UFMI is a personal one. Borrowers should carefully weigh the pros and cons before making a decision.