FHA Closing Costs
Closing costs are fees that are charged by the lender, mortgage broker or originator, the title company and other third parties.
The Federal Housing Administration strictly defines and restricts the closing costs associated with an FHA loan that the borrower must pay. While specific costs and amounts vary slightly and are determined by local FHA offices, this list can help borrowers to anticipate the costs associated with their FHA Home Loan.
Loan origination fee
– Mortgage lenders, brokers, or originators will charge a fee as compensation for their work or service. This fee imposed by the lender to extend the mortgage is called an origination fee. The origination fee is usually a percentage of the mortgage amount or a flat fee as a cost of obtaining funding from a certain lender.
Deposit verification fees
– A verification of deposit includes information about the borrower’s current balance, average daily and monthly balances, date the account was opened, name on the account, among others. Other accounts or assets such as retirement, 401k, annuities, etc., will also need to be verified by the processor.
– Attorney’s fees and notary fees are allowable fees on all FHA loans whether it is a purchase transaction or refinancing of an existing mortgage. The borrower may be charged attorney’s fees, only if the attorney is not an employee of the lender.
The appraisal fee and any inspection fees
– The borrower may be charged an appraisal fee. An appraisal is required on all FHA purchase transactions. Borrowers may be charged a pro-rata appraisal fee since the fee is charged by the appraiser. The fee may not exceed the actual appraisal fee. Inspection fees may be collected from the borrower for any inspections that must be conducted on the property.
Cost of title insurance and title examination
– The borrower may be charged title examination and title insurance fees, although they are not required by FHA.
Document preparation fees (by a third party)
– Document preparation fees may be charged only if the documents are prepared by a third-party and are not controlled by the lender. The lender may not charge a document preparation fee if they prepare the documents themselves.
– The borrower may be charged property survey fees, although they are not required by FHA. The title company will require a survey of the property to determine the meets and bounds, as well as easements and common areas.
Credit reports (actual costs)
– The lender can charge a fee for a credit report when the loan is manually underwritten. The lender may also charge a fee for Automated Underwriting System (AUS) credit reports.
– When the lender uses an Automated Underwriting System (AUS) that is not the lender’s own system or a system directly or indirectly owned by the lender, the lender may collect from the borrower the underwriting fee charged to the lender by the AUS. The lender can collect only one AUS underwriting fee from the borrower.
Transfer stamps, recording fees, and taxes
– The borrower may be charged for recording fees and taxes that are customary or required in the area.
Test and certification fees
– The borrower may be charged test or treatment fees that are required by FHA or the lender originating the loan. These fees include tests of water supplies, soil percolation tests for individual septic systems, or testing for or treating insect infestation.
Home inspection fees
– Home inspection fees up to $300, or the actual cost, may be included as closing costs in meeting the borrower’s minimum investment.
How much are closing costs?
The total dollar amount of closing costs in every loan will vary from lender to lender. The above list is a great guide to follow as far as which fees are allowed under the FHA loan program. For details and additional information, please contact our FHA Home Loan Specialists.
An FHA closing cost can be paid by the seller in form of contribution or Seller’s concessions. However, the closing costs cannot be included as part of the minimum down payment requirement of 3.5% and are considered a separate fee from the down payment itself. A borrower also cannot include or roll-in the closing cost to the total loan amount. It either must be paid by the borrower at closing or paid by the seller as part of the concessions.
The closing costs of FHA loans will vary by lender. The average closing costs on a mortgage loan are between 2% to 5% of the purchase price. FHA loans allow sellers to contribute as much as 6% towards the buyer’s closing costs and prepaid items. Highly motivated sellers sometimes will agree to contribute 6% of the sales price to cover the buyer’s closing costs.
Closing Costs Calculator
If you wish to figure out how much the approximate closing costs would be to buy a particular house at a specific price, use this mortgage calculator by BeSmartee.