What type of premium is charged at closing for all FHA loans?

The correct answer to this question is the up-front premium. For Federal Housing Administration (FHA) loans, borrowers are required to pay an upfront mortgage insurance premium (UFMIP) at closing. This premium is a one-time fee that helps to protect lenders against losses in case of borrower default. It is typically calculated as a percentage of the loan amount and is an essential aspect of obtaining an FHA loan, as it contributes to the overall funding of the mortgage insurance program.

The need for an upfront premium is tied to the FHA's goal of providing accessible home financing options to borrowers with lower credit scores or smaller down payments. By charging this initial premium, the FHA can maintain its insurance fund, which supports the risk of lending to higher-risk borrowers.

Other type of fees referenced, like an annual fee, service charge, or application fee, serve different purposes. An annual fee would account for ongoing mortgage insurance premiums charged on FHA loans but is not collected at closing. Service charges might be associated with processing the loan but are not specifically required under FHA guidelines. An application fee also does not pertain directly to the upfront cost mandated for FHA loans.