February 20, 2013
FHA loans require a minimum down payment, but those funds are not the only money needed at closing time. Borrowers should know and budget for a variety of expenses that are due on or before closing time.
That’s one reason why finance experts recommend taking a year or more to prepare for any type of home loan–saving for these expenses can make things financially easier once the home buying process begins. But what are the costs and expenses a borrower will need to close the deal?
Fortunately the FHA loan rulebook spells out the items needed at closing time–these must be paid for on or before the deal closes.
The FHA Loan rulebook, HUD 4144.1, says, “In addition to the minimum downpayment requirement described in HUD 4155.1 5.B.1.a, additional borrower expenses must be included in the total amount of cash that the borrower must provide at mortgage settlement.”
These additional expenses include (but are not limited to):
- closing costs
- prepaid items
- discount points
- non-realty or personal property
- upfront mortgage insurance premium amounts
- repairs and improvements
- real estate broker fees
- mortgage broker fees
- premium pricing on FHA-insured mortgages
- yield spread premiums
That list comes directly from the FHA loan rulebook. Along with the requirement for these items to be paid, there is also a rule that says the borrower must be fully informed about these fees. HUD 4155.1 says, “Lenders must include the sum of all fees and charges from origination-related charges in Box 1 on page 2 of the Good Faith Estimate (GFE).”
Additionally, “The GFE requires that lenders provide an aggregated cost for origination services.” Borrowers can’t be left in the dark about the actual costs and expenses related to their FHA home loan. The borrower is expected to read and understand this paperwork, but if there are any questions, the borrower should definitely get clarification from the lender or the FHA prior to closing the deal. For information on any aspect of FHA home loans or refinancing loan procedures in this area, contact the FHA at 1-800 CALL FHA for assistance.
Do you have questions about FHA home loans or refinance loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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