The upfront mortgage insurance premium (UFMIP) is one of two types of FHA mortgage insurance that covers the lender’s losses if you default on your FHA loan. The premium equals 1.75% of your loan amount, and is typically financed (added) to the loan balance.
The second type of FHA mortgage insurance is the annual mortgage insurance premium (MIP), which ranges from 0.45% to 1.05% of your loan amount depending on the term, loan amount and down payment. MIP is charged annually, divided by 12 and added to your monthly payment.
There are four major differences between private mortgage insurance (PMI) charged on a conventional loan and MIP charged on an FHA loan: