Which loan program has a mandatory UFMIP?

The correct choice indicates that FHA loans have a mandatory Upfront Mortgage Insurance Premium (UFMIP). This requirement is a defining characteristic of FHA financing. When borrowers take out an FHA loan, they are required to pay this upfront premium at the time of closing, which is typically a percentage of the loan amount.

The rationale behind the UFMIP is to protect lenders against losses caused by borrower defaults, helping to keep the FHA loan program financially viable and accessible to borrowers who may not qualify for conventional financing due to lower credit scores or smaller down payments.

In contrast, conventional loans generally do not have a mandatory UFMIP; instead, they might require private mortgage insurance (PMI) only if the down payment is less than 20%. VA loans do not require mortgage insurance at all, and USDA loans have their own fee structure, which does not involve an upfront mortgage insurance premium in the same way as FHA loans do. Therefore, FHA stands out as the only program among the choices provided that mandates an upfront insurance premium, making it the correct answer.