November 22, 2019
FHA home loan rules for mortgage closing costs include a requirement that down payment funds come from approved sources, but there are plenty of other guidelines for the money you’ll need to pay at closing time.
There are three basic categories when it comes to your home loan closing costs, some of which are subject to change. Some costs are fixed, and some can be increased by the lender depending on whether or there is a change in circumstances that affects the borrower’s credit rating, if there is a change in the down payment, or even the type of home loan (see below).
When And How Closing Costs May Change
There are certain rules that allow your lender to alter your closing costs. Under the right circumstances, those costs may change if:
- The borrower switches to a different kind of loan;
- The borrower changes the amount of the down payment;
- The appraisal on the home you want to buy came in higher or lower than expected
- The borrower took out a new line of credit;
- The borrower missed a payment and took a credit hit;
- The lender could not document your overtime, bonus, or other income
These are described by consumer protection agencies as a “change in circumstance” and it’s a common trap some borrowers fall into.
FHA loan closing costs will include the Up Front Mortgage Insurance Premium or MIP, prepaid expenses, the lender’s fee, and other costs that are explained in an estimate your loan officer is required to give you.
Some costs may be different at closing time, but if that is the case your lender should give you an updated estimate. Ask for one if you feel it is not forthcoming.
When closing costs are altered by a change in circumstances, some costs can change by any amount including:
- Fees paid to the lender, mortgage broker, or an affiliate of either the lender or mortgage broker;
- Fees for required services that the lender did not allow you to shop separately for when the provider is not affiliated with the lender or mortgage broker
- Transfer taxes
When closing costs are altered by a change in circumstances, some costs can change by any amount including these below which may increase by as much as 10% with a change of circumstance:
- Recording fees
- Fees for required services when you have chosen a third-party service provider on the lender’s written list of providers
- If a service provider is an affiliate of the lender, the cost cannot change at all regardless of circumstance.
Some closing costs are not controlled by the lender. These may be subject to change depending on circumstances:
- Prepaid interest
- Property insurance premiums,
- Initial escrow account deposits
- Fees for services required by the lender the house hunter shopped separately for in cases where a service provider is not on the lender’s written list
- Fees for third-party services that the lender does not require
If you are concerned that you may have a change in circumstances, or if you just want to know what to expect, talk to a loan officer about closing costs and how to prepare for them. It’s a good idea to ask the lender what may be typical, costwise, in your housing market and how long it may take to save up for those costs based on your financial needs and goals.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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