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FHA Closing Costs

What are those FHA closing costs?

The key difference between a typical mortgage and an FHA mortgage is that the amount you can expect to pay as a down payment is considerably less than most other mortgages.

Most of the conventional mortgages today, require 10% up to 20% down payment if you want a low interest rate. The lender can offset their risk by requiring a higher down payment and they reward you with a lower interest rate.

If you think you are ready, you will need a loan officer who is familiar with this type of loan product.

The low down payment is made possible by HUD who gives a guarantee to the bank supplying your loan. Basically HUD shifts the risk from the lender onto themselves providing you, the first time home buyer, meets their lending criteria.

What About Closing Costs With An FHA Loan?

Nevertheless, it is still important to consider what you might expect your FHA closing costs to be so you can close on your home.

While FHA mortgages are great when you take them out, there are costs incurred as a result. There are few differences between the way that an FHA mortgage and a normal mortgage work.

Differences Between FHA Closing Costs and Conventional Costs

The level of FHA loan closing cost that lenders can charge differs from conventional lenders and tends to follow a more complicated set of rules.

Since HUD is furnishing a loan guarantee to the lender, then the lender has to jump through a few hoops to get the deal done. The amount of fees they can charge is regulated.

These fees tend to take the form of six main areas although there are others:

fha closing costs
  1. Wire Fees – This is the costs incurred from the bank wiring the money to close the loan.
  2. Fee for the Origination of the Loan – Under the new FHA rules there is no longer maximum of 1% of the loan amount. So you want to negotiate this fee since it is where the broker/lender makes their money.
  3. Fees for Lender's Inspection – In order to approve a mortgage the lender will often have to send around a surveyor or some other party to inspect the properties condition and value. This fee covers that. Sometimes this is called an FHA inspection/appraisal.
  4. Fee To Cover Mortgage Application
  5. Brokers Fees
  6. Loan Discount Fee – This is the one fee that you have to watch very carefully BEFORE you take out an FHA Loan. This fee is really not necessary since interest rates on the FHA mortgage are low and comparable to the conventional loan anyway. Just tell the broker/lender you do not want to pay a loan discount fee.

FHA does not allow lenders to mark up any of these costs. In other words, if the appraisal or inspection fee was $300, the lender cannot charge you $350 for it. They can only pass along the exact amount of the fee. Mark ups violate FHA guidelines.

Most conventional lenders will not mark up these fees either, but there are a few that may. One way to see if this is happening, is to request a copy of the bill for the fees or costs charged to you for these services.

Another fee that is part of FHA closing costs that you could get around is the upfront mortgage insurance premium. If you put 20% down on the conventional or the FHA mortgage, you can avoid mortgage insurance premium. But, as part of these home loan closing costs, there is a lump sum premium that has to be paid at closing.

With FHA, the MIP or mortgage insurance premium is 1.75% that is paid upfront and normally rolled into the mortgage. Then you have a monthly MIP which is based on your actual loan to value (LTV) ratio. It runs on a sliding scale and is a subject for another page.

The best time to research FHA closing costs is BEFORE you put your signature on the dotted line. There is considerably more competition for your business than you may realize, and so shop around carefully and compare deals before finalizing your lender as not only may you be able to get better costs structures, but you may also be able to find lower interest rates as well.

With so many lenders to choose from, you want to be sure and select the right one.

Want More Understanding.....

I have an awesome calculator to help you figure your FHA closing costs. Be sure to take some time to explore it.

So have you found a home? Are you thinking about getting qualified for a mortgage? Maybe you want to visit our page on how to qualify for a mortgage.

Do you have questions or need more answers? Our Have a Question page is the perfect place to look for answers or ask your own questions. So go ahead....pick my brain!


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