May 22, 2013
A reader asks, “Can you have the closing costs added to your mortgage loan in California? Or do you have to pay them before escrow closes?”
Let’s see what the FHA loan rules, as described in HUD 4155.1, have to say about this. Chapter Five, Section A has a heading titled Settlement Requirements Needed To Close, which states:
“Lenders may pay a borrower’s closing costs, and/or prepaid items by ‘premium pricing.’ Closing costs paid in this manner do not need to be included as part of the seller contribution limitation. The funds derived from a premium priced mortgage
• may never be used to pay any portion of the borrower’s downpayment
• must be disclosed on the GFE and the HUD-1 Settlement Statement
• must be used to reduce the principal balance if the premium pricing agreement establishes a specific dollar amount for closing costs and prepaid expenses, with any remaining funds in excess of actual costs reverting to the borrower, and
• may not be used for payment of
− debts
− collection accounts
− escrow shortages or missed mortgage payments, or
− judgments.”
Note the line where it says that down payments can never be included in the amount of the loan–the down payment is known as a “minimum required investment”. Borrowers who cannot make a down payment will not be given an FHA loan. The down payment amount, at a minimum, is 3.5% of the loan.
Closing costs may include the down payment, broker fees, seller credits, discount points and other expenses as described in Chapter Five in HUD 4155.1.
This reader question also asks when closing costs including the down payment are due–these items must be paid at the time the loan closes. Speak to your lender about the procedures for making such payments for more information.
Do you have questions about FHA mortgages? 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.
Browse by Date: