FHA Mortgage UFMIP

FHA Mortgage UFMIP

FHA charges two types of Mortgage Insurance Premiums; Up Front Mortgage Insurance (UFMIP) and Monthly Insurance (MIP).  The borrower pays each and it protects the lender in the event of default.

UFMIP is a one time charge that is typically added to the base mortgage loan and financed.  UFMIP can also be paid in cash by the buyer or seller.  If paid by the seller the seller's total contribution can not exceed 6% of the purchase price.

FHA UFMIP is currently fixed at 1.75% of the loan amount.  Over the years FHA UFMIP has varied to a high of 2.25% of the loan amount down to its current 1.75%.

In 2008, FHA decided to change UFMIP to a risked based amount that would vary depending on the loan-to-value and credit score of the borrower.  Then, before risked based UFMIP was put into effect Housing Bill HR 3221 placed a moratorium on Risk Based Pricing Beginning October. 1, 2008 and ending September. 30, 2009. 

September 2009 came and went and FHA did not send notice that it had been reinstated.  In a recent interview with MS-NBC, Dave Stevens the new FHA Commissioner stated that while Risked Based UFMIP was being considered he did not feel it is needed.  So it looks like we will continue with fixed UFMIP.

Is FHA UFMIP for Mortgage Insurance Tax Deductable?  The answer is a qualified yes.

Good news!  The President has extended the Mortgage Insurance Tax Deduction through 12/31/11!

Under code section 163(h)(3)(E), FHA UFMIP and monthly MIP are deductible. The premium must have been paid in conjunction with the purchase of a principle residence. It must be paid on a mortgage issued after December 31, 2006. The deduction only applies for years 2007 through 2011.

If your adjusted gross income exceeds $100,000 the deductible premium is reduced by 10% of each $1,000 of AGI above the $100,000 to $109,000.  Mortgage Insurance is not tax deductable for borrowers with income in excess of $109,000..

If you financed a lump-sum UFMIP mortgage insurance provided by FHA or a private mortgage insurer that also covers years after 2006, you must determine the portion of the premium that pays for insurance for the tax year by dividing the total premium by the stated term (number of months) of your mortgage, or 84 months, whichever is less.  Multiply that amount by the number of months during the tax year that your home was covered by the mortgage insurance. Enter the amount allocated to the tax year in the worksheet for Schedule A, Line 13, to figure your deduction for the tax year.

If your mortgage is satisfied before the end of your tax year, you cannot deduct the amounts that are allocated to periods after the mortgage is satisfied.

If you paid cash for an up front premium for insurance provided by FHA, VA or Rural Housing, commonly known as a UFMIP, VA Funding Fee and Guaranty Fee respectively, no allocation is necessary, and you figure your deduction for the tax year based on the full amount of the payment. Enter the full amount in the worksheet for Schedule A, Line 13, to figure your deduction.  Please verify this tax information with your licensed tax professional.

Answers to all your home loan questions can be found at: http://www.yourfhaguru.com 

August, 2009 FHA Mortgage UFMIP