April 21, 2015
One common question asked about FHA home loans involves closing costs. Many FHA borrowers want to know how much to expect in the form of closing costs, but the simple answer to these question is, “it all depends”. Depending on what?
No two housing markets are the same, and no two lenders are exactly the same either. The amount of closing costs you have to pay will vary based on these factors plus how state law may affect your transaction, possible property tax issues, how much is charged in your local area for certain services rendered, etc.
Cost of services may vary, but the FHA has built in some protections for the borrower when it comes to those charges. HUD 4155.2 Chapter Six has some things to say about closing costs on FHA loans, beginning with the following:
“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 FHA’s tiered pricing rules, per Mortgagee Letter 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. Only the actual cost for the service may be charged to the borrower.”
That means that if the costs of pulling your credit reports is $75 for the lender, the lender must only pass that charge on to you without adding additional fees to that sum. FHA loan rules also have a say in how discount points are considered in the loan process:
“Discount points charged by the lender on a purchase transaction may be charged to the buyer, but may not be included in the financed mortgage amount.” This rule applies to new purchase loans, but the regulations are different for refinance loans. From Chapter Six:
“Reasonable discount points for refinance transactions may be financed into the mortgage amount, subject to equity requirements and other restrictions applied to refinances.”
Chapter Six also reminds borrowers and lenders that closing costs paid up front by the borrower are NOT considered part of the borrower’s minimum required 3.5% down payment. That is very important to keep in mind when budgeting for your new home loan.
Do you have questions about FHA refinance loans? Ask us in the comments section but keep in mind that all comments are held for moderation. Yours may not appear on the site until it has been reviewed.
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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