April 7, 2022
What do FHA loan closing costs include? There are certain fees and expenses you will need to save up for during the planning stages of your FHA home loan.
They include an up-front mortgage insurance premium, home inspection, appraisal fees, and other costs that add up and you may encounter unexpected costs like a compliance inspection that would come on the heels of the appraisal where repairs or corrections are required. They are not required in all home loan cases (only when deemed necessary as a result of the appraisal), so it’s not an expense you will definitely have to pay.
Remember that the less you have included in the loan amount (certain permitted closing costs may be added to the loan) the lower your mortgage payments potentially are.
Closing costs are not standardized; your FHA loan may cost more in some housing markets than others depending on what is reasonable and customary in that market.
It is important to know that in most cases the fees and expenses of your loan will be priced in a similar fashion.
If you aren’t sure about a certain cost or fee, ask your lender to explain it and how it works. It is never a good idea to proceed with your loan when you are confused or unclear on a certain fee, requirement, etc. Know before you commit!
FHA home loan closing costs may include the following:
- The appraisal fee and any inspection fees
- Credit reports
- Lender’s origination fee
- Deposit verification fees
- Attorney’s fees
- Lender’s origination fee
- Cost of title insurance and title examination
- Document preparation (by a third party)
- Property survey
- Transfer stamps, recording fees, and taxes
- Test and certification fees
- Home inspection fees up to $200
It is important to remember down payments are not viewed as part of the closing costs. This means that your money paid toward the down payment is not lumped in with the money you pay for closing costs.
The down payment is a separate expense and the closing cost funds cannot be counted as part of the down payment.
The good news is that there may be a local (not FHA) down payment assistance program in your area that can help you reduce out-of-pocket down payment costs.
You are also permitted to have the seller or other interested third party contribute up to six percent of the home’s sale price in the form of seller-paid closing costs. The seller cannot put money toward your down payment, but seller-funded closing costs are allowed.
These practices require the money to be properly sourced; the down payment funds cannot come from unapproved sources.
The seller contributions are restricted to six percent; any amount above this restriction results in a dollar-for-dollar reduction in the loan amount. FHA loan rules are clear in this area-the six percent rule applies to all new purchase transactions.
Ask your loan officer if you aren’t sure what is customary in your housing market or how to bring up the seller contributions issue with the owner of the home you wish to buy with an FHA mortgage.
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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