Many home buyers are wondering, “How Much Will My Closing Costs Be On An FHA Loan?” Many expenses are associated with purchasing a new house. In addition to the selling price, there are various fees that go into the closing costs that must be paid.
Buyers who are using a Federal Housing Administration (FHA) loan can qualify to buy a home with a lower credit rating and can make a smaller down payment, sometimes as low as 3.5 percent. This is a popular choice for first-time home buyers who do not have a lot of savings. However, there are still closing costs that must be paid, including the costs one would find in a conventional loan along with some that are unique to loans from the FHA.
What Are Closing Costs?
Closing costs are the fees that buyers must pay when getting a mortgage to purchase a home. They often run into thousands of dollars but the exact figure depends on a variety of factors including the cost of the home, type of mortgage and state of residence.
These costs are due when the mortgage paperwork is signed and are traditionally covered by the buyer, although it may sometimes be possible to negotiate with the seller to have them cover some of the fees as part of the sales deal.
Different Types Of FHA Closing Costs
FHA closing costs include fees from the mortgage lender, title companies and credit reporting entities. Mortgage insurance also factors into these fees. Below is a closer look at some of the individual components of the closing costs on an FHA loan.
Lender fees cover underwriting, which is the cost of evaluating and verifying the mortgage. An origination fee may also be charged for initiating the loan. Interest rate locks and document preparation fees also apply.
Those who are financing the purchase with an FHA 203(k) renovation loan will also need to pay a supplemental loan origination fee. Lender fees can typically be negotiated depending on a buyer’s credit history and the current market conditions.
This category includes charges for non-lender services, such as appraisers, attorneys, credit reporting agencies, notaries, recording work, flood zone certification and couriers.
The closing costs on an FHA loan also include some expenses that must be paid in advance. These fees include flood and hazard insurance, title insurance, per diem interest, property taxes and tax and insurance escrow deposits. In some cases, the buyer and seller may negotiate sharing these expenses.
Mortgage Insurance Premium
FHA mortgage insurance premiums usually amount to 1.75 percent of the amount of the loan and may be wrapped into the loan itself. There are also ongoing mortgage insurance premium payments that homeowners must make, ranging from .45 to 1.05 percent of the loan each year of the term. This is included in the monthly mortgage payment.
The premium will be adjusted each year according to the outstanding loan balance. However the rate charged will remain the same throughout the lifetime of the loan. The upfront and ongoing mortgage insurance premiums are not charged in conventional loans for borrowers whose down payment exceeds 20 percent of the selling price.
How Much Will My FHA Closing Costs Be?
With an FHA loan, the closing costs equate to around 3 percent of the home’s purchase price, on average. Fees vary by state, with higher borrowing costs in states with a higher tax rate. Mortgage lenders will provide homebuyers with an estimate of their closing costs up front so they can make an informed decision before proceeding. Although federal rules do permit sellers to cover some of the buyers’ costs, this is typically capped at around 6 percent of the selling price.
Buyers who are concerned about covering these additional costs might wish to consider purchasing discount points. This will lower the loan’s interest rate and the total amount paid over time. Discount points are considered another lender fee, with one point equaling 1 percent of the amount of the loan.
It may also be possible to get the seller to pay many of these costs as a concession during negotiations, particularly when other buyers are not making offers and the seller is eager to close a deal.
Some homebuyers may be eligible for a closing cost grant from their state or local housing assistance program. FHA-backed loans permit people to use gifts from family members, charities, employers and friends.
Speak With A Professional Mortgage Brokerage Today
If you are interested in obtaining an FHA loan to make your dream of owning a home a reality, get in touch with the professional mortgage brokerage at My Lending Pal to learn more about all the fees involved and the various options available for covering them.