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.

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

Whilst these type of mortgages are great when you take them out, there are costs incurred as a result. There are two main differences between the way that an FHA Mortgage and a normal mortgage work.

The Two Main Differences Between FHA and Conventional:

1. The level of homeowners insurance that you will be expected to take out are greater.

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

These fees tend to take the form of six main areas:

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 FHA rules this can be a maximum of 1% of the loan amount, and is technically to cover the admin charges involved in setting up the loan.

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.

4. Fee To Cover Mortgage Application

5. Brokers Fees

6. Loan Discount Fee – This is the one fee area that you have to watch very carefully BEFORE you take out an FHA Loan. Under the program lenders can charge up to 2% in FHA loan closing costs, and if added together with all the other types of FHA closing costs this can very quickly add up to a sizable chunk of money.

Not all lenders will charge the full 2% though, and some will make a point of telling you that their FHA closing costs are lower in order to get your business, so watch out for these.

FHA mortgage loans do 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 with the conventional mortgage is the upfront mortgage insurance premium. If you put 20% down on the conventional 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.

The best time to research these 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.

Having the ability to finance these closing costs makes the FHA loan ideal for the first time home buyer. Be sure to investigate FHA home loans.

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