If you have an FHA loan, something you'll notice is the down payment is wrong on page 2.

I'll use an example.

On a purchase price of $100,000 (for easy numbers) you were told that the minimum down payment needed to be 3.5%

So you plan on that, 3.5% or $3,500

In your mind it should be simple.

Purchase price = $100,000

Down payment = $3,500

Loan amount = $96,500

But that's not what shows up on your loan estimate.

Let me introduce you to UFMIP or Up Front Mortgage Insurance premium.

See that charge on page 2 section B?

That's UFMIP

That's a charge to put into an insurance fund. This insurance fund protects lenders if you default on an FHA loan.

FHA loans have lower credit tolerances, and are more risky. So it comes with two mortgage insurance charges: up front AND monthly.

The up front part is 1.75% of the loan amount.

So back to our example, loan amount x 1.75% = $1,688.75

Then they ADD that to your loan.

So your loan amount is actually $98,188.75

They add it to the loan?

Yes. This is considered a financed fee. It isn't out of pocket, they roll it into the loan.

So your 3.5% down payment doesn't go as far, because they're pushing some expensive fees BACK IN.

That's why you'll see that the down payment is actually:

$3,500 (down payment) - $1,688.75 (UFMIP) = $1,811.25 (actual down payment)

They're showing you that a big chunk of your down payment is getting eaten up by a fee.

And that is why the loan amount on your Loan Estimate is higher.

I hope this helps.