How is the upfront mortgage insurance on a full qualifying FHA loan categorized?

How is the upfront mortgage insurance on a full qualifying FHA loan categorized?

• A. A percentage of the purchase price
• B. A flat fee
• C. Part of the loan amount
• D. A monthly payment

Answer: (A)

Upfront mortgage insurance on a full qualifying FHA loan is categorized as a percentage of the purchase price. This cost is required by the Federal Housing Administration (FHA) to protect lenders against losses that could occur if the borrower defaults on the loan. The upfront mortgage insurance premium (UFMIP) is typically calculated as a percentage (currently 1.75% as of my last training) and is based on the loan amount, which is generally the purchase price plus any financed closing costs. This percentage structure ensures that the insurance premium scales with the size of the loan, resulting in a higher upfront fee for more expensive properties. It directly ties the cost of insurance to the value of the property being purchased, which is a fundamental characteristic of FHA loans as they aim to make homeownership accessible while providing lenders with a layer of security. A flat fee option typically does not apply, as the UFMIP is inherently variable depending on the purchase price. Similarly, categorizing this fee as part of the loan amount may lead to confusion, as while the insurance can be financed into the loan, it is not described as part of the loan itself. Lastly, the upfront mortgage insurance is not a monthly payment; instead, it is a one-time fee prepaid

Upfront mortgage insurance on a full qualifying FHA loan is categorized as a percentage of the purchase price. This cost is required by the Federal Housing Administration (FHA) to protect lenders against losses that could occur if the borrower defaults on the loan. The upfront mortgage insurance premium (UFMIP) is typically calculated as a percentage (currently 1.75% as of my last training) and is based on the loan amount, which is generally the purchase price plus any financed closing costs.

This percentage structure ensures that the insurance premium scales with the size of the loan, resulting in a higher upfront fee for more expensive properties. It directly ties the cost of insurance to the value of the property being purchased, which is a fundamental characteristic of FHA loans as they aim to make homeownership accessible while providing lenders with a layer of security.

A flat fee option typically does not apply, as the UFMIP is inherently variable depending on the purchase price. Similarly, categorizing this fee as part of the loan amount may lead to confusion, as while the insurance can be financed into the loan, it is not described as part of the loan itself. Lastly, the upfront mortgage insurance is not a monthly payment; instead, it is a one-time fee prepaid