Articles in Category: Closing Costs

April 21, 2014

FHA Loan Down Payments

One important question about any home loan transaction involves the down payment. How much should a borrower save? When it comes to FHA home loans, there are rules about the minimum required “cash investment” (down payment) specified in HUD 4155.1 Chapter Two. The amount of the down payment depends on the appraised value and/or the sale price of the home. According to Chapter Two, the maximum amount the borrower can get with the FHA loan guarantee is calculated as follows “The maximum mortgage amount that FHA will insure on a purchase is calculated by multiplying the appropriate loan-to-value (LTV) factor by the lesser of the property’s • sales price, subject to certain required adjustments, or • appraised value.” The next step according to this portion of Chapter Two is calculating | more...

February 21, 2014

FHA Loan Answers: Can The Lender Pay Closing Costs On An FHA Mortgage?

By Joe Wallace

There are a lot of rules about the closing costs associated with an FHA mortgage loan. For example, the rules in HUD 4155.1 state that closing costs cannot be considered part of the borrower’s required down payment. The minimum cash investment requirement is separate from the FHA loan closing costs and must be paid in addition to those costs. There are rules governing how much a seller can contribute to closing costs, and there are rules about what costs can and cannot be charged to the borrower. Some FHA loan applicants may wonder if there are any provisions for the lender to pay closing costs; after all, the seller may contribute so why not the lender? This practice is allowed under VA home loan rules–it’s known as “premium pricing” and | more...

January 24, 2014

Can FHA Home Loan Closing Costs Be Financed? A Reader Question

By Joe Wallace

A reader asks, “I have read in several places on the web that it is possible to finance your closing costs into a FHA loan. However, many of these sources are at least a couple of years old. Is this possible?” To start, let’s examine what the FHA official site has to say about FHA loans and closing costs. At www.HUD.gov on the page titled Let FHA Loans Help You, we find the following: “FHA might be just what you need. Your down payment can be as low as 3.5% of the purchase price, and most of your closing costs and fees can be included in the loan. Available on 1-4 unit properties.” Some closing costs may be financed, some may be paid by the seller within the boundaries of | more...

January 16, 2014

Can A Family Member Loan Money For Closing Costs On An FHA Mortgage?

By Joe Wallace

When you apply for an FHA loan, the lender will explain that there are a variety of closing costs to anticipate including the amount of the required 3.5% FHA loan down payment. Some FHA loan applicants may struggle financially with the credit costs and seek to borrow money to cover them. FHA loan rules permit this but only under approved conditions. A borrower’s required funds for down payment, for example, must come from an approved source such as personal savings, investments, or (in cases where a loan is required) from a secured loan. Down payment money cannot come from credit card cash advances, payday loans or other “non-collateralized” loans. Can a family member lend an FHA borrower the funds to close? According to FHA loan rules in HUD 4155.1, Chapter | more...

December 27, 2013

FHA Loan Answers: Debt To Income Ratios

By Joe Wallace

When a borrower applies for an FHA home loan, he or she is asked to list all source of verifiable income. This is used to calculate the debt-to-income ratio, which is a comparison of the borrower’s income against the amount of financial obligations the applicant must pay every month. The ratio is very important in the FHA loan approval process. According to HUD 4155.1, Chapter Four, Section F, this ratio must be calculated in two ways–the borrower’s income is compared to the projected amount of the FHA mortgage payment, and a separate calculation is made for the total amount of monthly debts plus the mortgage payment. Why are these calculations made? Because FHA loan rules don’t allow the mortgage payment itself or the amount of total debt plus the mortgage | more...

December 19, 2013

FHA Loan Closing Costs: A Reader Question

By Joe Wallace

A reader asks, “My husband and I are trying to buy a home. We have the 3-3.5% down required, I have $1500.00 for the realtor earnest money, the appraisal and the inspection. Is that all the money I will need up front. We are asking seller to pay closing. Since we can ask them that 6% goes to pay to closing. SO, if seller pays closing. I have money for the down payment, earnest money, appraisal and inspection- that will be all I need, correct?” It’s difficult to answer a question like this because every loan is unique. Some home loan purchases may require a flood zone determination, there may be certain legal fees if the borrower has paid for certain title services, state laws and tax code may apply, | more...

December 10, 2013

Closing the FHA Loan: Settlement Costs

By Joe Wallace

When you learn about FHA home loans, the phrase “cash required to close” is one you’ll soon become familiar with. One of the reasons so many experts recommend taking as much time as possible to prepare for a home loan? Giving yourself enough time to save up the money required to close the deal. The required 3.5% down payment is part of that, as are the payments you’ll need to make for appraisals and any required compliance inspection. But there are other costs as well; fortunately FHA loan rules in HUD 4155.1 instruct the lender to prepare an estimate sheet to give the borrower a better idea of what these expenses are. According to Chapter Five of HUD 4155.1, “For each transaction, the lender must provide the initial Good Faith | more...

December 3, 2013

FHA Loan Downpayment and Rent Credit: A Reader Question

By Joe Wallace

A reader asks, “If leasing a property that you intend to purchase can part of each month’s rent go towards the full downpayment amount?” The short answer to this question is, “It depends”. Much depends on whether or not such rent credit meets FHA loan requirements. The FHA loan rulebook, HUD 4155.1, states that rent credit could be considered a legitimate source of down payment funds, but only if certain standards are met. This information is found in HUD 4155.1, Chapter Five Section B, which says, “The cumulative amount of rental payments that exceed the appraiser’s estimate of fair market rent may be considered accumulation of the borrower’s cash investment.” FHA instructions to the lender in these cases include the following: “The endorsement package must include the • rent with | more...

July 26, 2013

FHA Loan Downpayment Sources: A Reader Question

By Joe Wallace

A reader asks, “Can I use money from a residential loan or my thrift savings towards a FHA downpayment and closing costs?” The rules that cover down payment funds for FHA insured mortgages are found in HUD 4155.1, Chapter Five. That chapter begins by stating, “Under most FHA programs, the borrower is required to make a minimum downpayment into the transaction of at least 3.5% of the lesser of the appraised value of the property or the sales price. Additionally, the borrower must have sufficient funds to cover borrower-paid closing costs and fees at the time of settlement. Funds used to cover the required minimum downpayment, as well as closing costs and fees, must come from acceptable sources and must be verified and properly documented.” Specifically, the reader wants to | more...

July 8, 2013

FHA Loan Rules For Earnest Money

By Joe Wallace

In previous posts, we’ve discussed the rules for FHA loans when it comes to the sources of your required minimum cash investment or downpayment. But did you know the FHA has rules concerning the source of your earnest money, too? In some cases the source of your earnest money may be scrutinized in a manner similar to the verifications required for down payment funds. FHA loans require downpayments from approved sources such as personal savings, cashed-in investments, bona fide gifts that meet FHA loan rules, etc. So what are the rules for earnest money paid for a home to be purchased with an FHA mortgage? According to the FHA loan rules found in HUD 4155.1 Chapter Five, Section B, “The lender must verify and document the deposit amount and source | more...