July 9, 2015
In a recent blog post, we discussed some of the rules for closing the deal on an FHA home loan. Did you know that FHA loan rules found in HUD 4155.2 cover specific aspects of the loan closing procedure including taxes, closing costs, and title issues?
Chapter Six of HUD 4155.2 explains these policies. For example, in Chapter Six we learn that the lender is permitted to calculate–and collect–property tax payments under the right circumstances:
“…The lender may project real estate tax payments, and collect those funds as a portion of the monthly escrow account payment without violating the Real Estate Settlement Procedures Act (RESPA). RESPA requires that a borrower receive an initial escrow account statement at settlement or within 45 days of settlement. In conducting this analysis, RESPA permits lenders and mortgage servicers to project the disbursements for real estate taxes for the ensuing 12 months and collect funds based on this projection.”
Furthermore, “On a newly-constructed dwelling, however, the lender must not predicate a borrowers monthly escrow payments on the value of vacant land when tax authority reassessments are likely to occur within 12 months of mortgage loan closing.”
Escrow is not required by the FHA, but many lenders do require such accounts, depending on the type of loan.
When it comes to closing costs, Chapter Six instructs the lender that the borrower cannot be charged more than the cost of services rendered for certain closing expenses. Additionally, the FHA rules say:
“The lender may only collect fair, reasonable, and customary fees and charges from the borrower for all origination services. FHA will monitor to ensure that borrowers are not overcharged. Furthermore, the FHA Commissioner retains the authority to set limits on the amount of any fees that a lender may charge a borrower(s) for obtaining an FHA loan. Aggregate charges may not violate FHAs tiered pricing rules, per ML 94-16. Additionally, FHA does not allow mark-ups. The cost for any item charged to the borrower must not exceed the cost paid by the lender, or charged to the lender by the service provider.”
These rules protect the borrower from excessive costs and provides the lender with a guide to follow when it comes to closing costs. Some fees and expenses such as discount points and mortgage rate lock-ins are not considered closing costs–discuss these with your lender to learn how they must be paid.
Do you have questions about FHA loans? Ask us in the comments section, but know that all comments are reviewed before they are posted to the site.
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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