FHA Closing Cost Explained

Disclosure:  Mortgage policies and guidelines change frequently for all mortgage product; FHA/VA & Conventional. Always check with your lender of choice about their fees before jumping ahead.  When writing here we try to find the most current guidelines to give you the head-up you need. That does not mean that in the interim something could have not been published that exist.

FHA mortgage loans are popular for those who have yet to accumulate substantial savings to pay all the closing cost.  Another important option is that the seller of the property is allowed to pay 6% of the sales price toward the buyers closing cost, discount points and prepaid items.

The borrower charges may add up to be between 3% to 5% of the loan amount.

Another important advantage to an FHA mortgage loan is the fact that closing cost may be financed into the loan amount. To do this, the maximum loan amount may not be more than 96.5% of the sales price for a purchase, or appraised value which ever is less.  The buyer must contribute 3.5% into the transaction.

Closing cost for FHA products used to have another feature regarding closing cost, however, FHA no longer has non-allowable fees for the buyer. It is thing of the past.

The lenders are restricted from using closing cost to meet the Minimum Required Investment (MRI) of 3.5%.  This investment by the borrower must be above and beyond the closing cost of the loan.

 

FHA Allowable Fees – Customary and Reasonable Fees

  • Escrow Fees – Base
  • FHA appraisal Compliance Inspection
  • Loan Origination fee, usually .5 to 1%
  • Lock-in and Rate Loak Fees
  • Title Insurance ALTA
  • FHA MIP Premium *mortgage insurance premium
  • Discount Points – normally to get a lower rate of interest
  • Credit Report Fee – (the actual cost)
  • Prepaid Interest Charges – interim -the amount of interest charged if the loan closes on the 15th of the month – there is interest charged to the end of the month.
  • Hazard or Flood Insurance Premiums
  • Reserves for Taxes and Insurance **Taxes and Insurance must be paid in the mortgage amount. It cannot be waived
  • Notary Fee of $10 – signature
  • Recording Fees – Actual Cost
  • Termite -initial inspection okay – no repairs unless approved in writing by lender
  • Home Warranty – okay if written in escrow instructions and prior lender approval
  • Amortization Schedule Fee
  • Real Estate Commission – if prior lender approval in writing
  • Broker Fees – if approved prior to closing by lender in writing
  • Tests or treatment required by HUD – with prior lender approval in writing
  • Compliance Inspection Fee

Sales concessions may be paid for by the seller but the total must be deducted from the sales price of the property before the calculation of the maximum loan amount.