July 2, 2013
When it’s time for you to close your FHA home loan, you’ll be required to pay cash up front for certain items not to be included in the loan amount. These items include Up Front Mortgage Insurance Premiums or UFMIP, and the down payment. But there’s also an issue related to any “per diem interest” that might occur if the loan did not close on the original date agreed upon.
When it comes to that per diem interest, borrowers should know the FHA loan rules (spelled out in HUD 4155.1) governing the money paid at closing time. Chapter Five of HUD 4155.1 states:
“The lender must use a minimum of 15 days of per diem interest when estimating prepaid items on the Good Faith Estimate (GFE). To reduce the burden on borrowers whose loans were scheduled to close at the end of the month, but did not due to unforeseen circumstances, lenders and borrowers may agree to credit the per diem interest to the borrower and have the mortgage payments begin the first of the succeeding month. The dollar amount of the per diem interest credit may not be used to reduce the borrower’s required cash investment.”
That means that if the lender owes per diem interest, it is a separate issue from any down payment funds needed–the minimum down payment cannot be reduced in any way. That’s true of all the funds needed to close; a down payment is considered separate from all other money needed at closing time. For example, discount points. According to Chapter Five:
“Discount points paid by the borrower
- become part of the total cash required to close
- are not eligible for meeting the minimum down payment requirement, and
- must appear on Line 10 of Page 3 of form HUD 92900-A, HUD/VA Addendum to Uniform Residential Loan Application.”
Similar rules apply to any funds paid for personal property the borrower is purchasing from the seller that are not part of the sale of the home per se, but are included in the transaction. These items are known as “non-realty” items. ”
Non-realty (chattel) or personal property items that the borrower agrees to pay for separately, including the amount subtracted from the sales price when determining the maximum mortgage, are included in the total cash requirements for the loan.
And finally, the UFMIP is also paid separately from the down payment and not considered part of it. Furthermore, FHA loan rules require an all-or-nothing UFMIP payment either as part of the closing costs or as part of the loan amount. “Any upfront mortgage insurance premium (UFMIP) amounts paid in cash are added to the total cash settlement requirements. The UFMIP must be
- entirely financed into the mortgage, except any amount less than $1.00, or
- paid entirely in cash and all mortgage amounts rounded down to a multiple of $1.00.”
Do you have questions about FHA home loans? 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.
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