July 5, 2018
What kind of cash to close do borrowers need with an FHA mortgage loan? The amount and nature of the cash to close the FHA loan will vary depending on several factors including the amount of your down payment, whether you have financed the Up Front Mortgage Insurance Premium or not, etc.
FHA Loans Cash To Close: Your Down Payment
For new purchase home loans, FHA loans cash requirements to close the deal will include the minimum 3.5% down payment for borrowers who qualify for that lowest down payment with FICO scores that meet both FHA minimums and lender requirements.
10% down is required for borrowers with FICO scores that don’t fall into the ranges specified by FHA loan rules and lender standards.
But the exact amount of cash needed for the down payment can be affected by a borrower’s arrangements; if there is a gift to the borrower in the form of down payment assistance, those gift funds may reduce the borrower’s out-of-pocket expenses. But it will be up to the borrower and the lender to work out how that down payment assistance must be verified and paid.
The lender will require full documentation of the source of that down payment assistance, so be prepared to discuss that aspect of getting help putting money down on the FHA mortgage loan-standards may vary from lender to lender, and state law may also have a say in how such issues are handled.
FHA Loans Cash To Close: Seller Contributions
The seller may contribute up to six percent of the sale price of the home to the transaction without a penalty (resulting in a lowering of the mortgage amount by the dollar amount over six percent), and how those funds are to be delivered is also a matter you should discuss with your loan officer.
As with any other contributions from third parties, the lender will be required to verify the source of these funds. The borrower cannot use funds from an unverifiable source or when the source of funds is not permitted. But the seller can provide some of these closing costs to help reduce the borrower’s out-of-pocket expenses.
The seller may NOT contribute to the borrower’s down payment.
FHA Loan Cash To Close: Origination Fees and Pre-Paid Expenses
Your loan officer may require the use of an escrow account for issues such as property taxes and other expenses associated with your mortgage loan.
The cash to close for your FHA mortgage may include escrow fees, the lender’s origination fees, any applicable taxes, etc. Some lenders may offer you lower out-of-pocket expenses up front (such as lower origination fees) in exchange for a higher interest rate. If you choose to pay for discount points these may also be included as part of the money needed to close.
FHA loans require an Up Front Mortgage Insurance Premium; if you are buying a home you will either pay this up front at closing time or finance the entire amount into the loan.
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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