FHA Loan Closing Costs
FHA loan closing costs are carefully controlled by HUD rules and regulations. This is very good for the borrower (you) because it keeps you from being charged unreasonable fees by your lender. In other words, the government keeps you from getting ripped off by lenders. Closing costs and related fees are normally paid at closing.
The actual sale of the home that you are buying occurs in a special meeting called “the closing.” During the closing process, all the appropriate documents are signed, title insurance is formally issued and money finally changes hands.
There are two types of closing meetings: sit down and individual. At a sit down closing all the interested parties meet at a specified time and place and “close” the sale.
At an individual closing, each of the interested parties makes an appointment with the closing agent, in most states the title agency, and performs whatever function that they are responsible for in the sale transaction.
Regardless as to the type of closing you will be going through, you will be required to come up with the money and sign the mortgage and related documents.
At this time you will be expected to produce the purchase price of the house which is usually supplied by your mortgage lender, any remaining down payment, closing costs and fees.
In an FHA backed Loan, there are only certain fees that may be charged by the lender. What they can charge depends upon the type of financing.
If it is an initial mortgage the FHA will allow you to be charged for the following:
- The Cost of Appraising the property you are buying. Normally, this will be between $300 and $350 USD. This must be the actual cost.
- The Cost of Your Credit Report. This is limited to the actual cost charged by the credit agency(ies).
- The costs required to actually close the mortgage. These are limited to what are known as “customary and reasonable costs.
- Loan Origination Fee. This fee is limited to a maximum of 1% of the mortgage loan value on a regular mortgage and a maximum of 2% for home equity conversion loans.
The fees that you may be charged in a refinance are also controlled by the FHA. In a refinance loan, the following fees and payments are allowed:
- The reasonable and customary costs required to close the mortgage.
- Payoff bills. Frequently, borrowers will refinance their home to get money to pay off bills. Quite often this is a very wise move. While it is true that you can not borrow your way out of debt, it is also a fact that by refinancing your mortgage at the time, you can often get the cash necessary to pay off all or most of your debts while actually reducing your mortgage payments or by at least dramatically reducing your monthly cash flow. When a borrower does this, the mortgage company will frequently require that the bills that are to be paid off be paid off as a part of the transaction closing process.
There is also a very nice rule that the FHA has which permits the seller to pay a maximum of 6% of the property purchase price toward the buyer’s closing costs.
Always be sure to get a copy of the Good Faith Estimate of your closing costs from your lender. There are also one or more FHA Non-Allowable Costs. Consult your lender or the FHA for a current list.
Be sure to get and review your Good Faith Estimate before your closing appointment if at all possible. Make sure that every closing cost that you are charged is on the list of FHA mortgage loan closing costs because the list is designed to protect you from unscrupulous lenders.
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