January 8, 2015
In our last post, we answered a reader question about FHA loan closing costs. This type of question is important for borrowers to ask as the answers can help you save and prepare for the costs of getting a home loan.
There are several items a borrower may be required to pay at or before the loan closes in order to finalize the transaction. Some of these items include pre-paid expenses such as per diem interest, and discount points (when the borrower chooses to pay these points).
Pre-paid expenses are defined in HUD 4155.1 Chapter Five as follows:
“Prepaid items are collected at closing to cover
accrued and unaccrued hazard insurance premiums
mortgage insurance premiums
taxes
per diem interest, and
other similar fees and charges.”
How does per diem interest work? According to Chapter Five, the Good Faith Estimate figures largely in the calculation:
“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.”
Chapter five adds, “The dollar amount of the per diem interest credit may not be used to reduce the borrower’s required cash investment.”
Where discount points are concerned, Chapter Five says, “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.”
Discount points are an option the borrower has to pay up front to reduce the interest rate on the mortgage loan. Talk to your loan officer about this option of you need to know more.
Do you have questions about FHA home loans? Ask us in the comments section. You can also follow us on Facebook.
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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