What to Know About the Costs of an FHA Mortgage
Yes, the FHA Lenders Handbook does specify some limits on what the lender may charge. And those charges are often a percentage of the loan amount or the sale price of the home.
But those limitations are often more about how the FHA loan costs measure up to comparable non-FHA loan options. HUD 4000.1 may require the lender’s costs to be “reasonable” and typical of similar mortgage options.
How Much Should You Save for Closing Costs?
This is a smart question to ask as early in the process as you can. As an estimate, some lenders advise saving between two and six percent of the sale price for closing costs is a good place to start.
Your housing market may have higher or lower costs depending on circumstances so it’s always best to ask.
What To Expect in Your List of Closing Costs
Your actual costs will vary but in general, you should expect to pay for items including but not limited to:
- FHA mortgage origination fee
- Document preparation fee
- Supplemental loan origination fee where applicable
- Interest rate lock fees
- Credit report fees
- Any compliance inspection costs
- Appraisal fees
- Discount points or prepayment costs
The FHA loan funding fee is part of your closing costs and is based on a percentage of the mortgage amount.
FHA Loan rules say the lender may charge a “reasonable” fee, but for FHA loans, the lender “may charge and collect from Borrowers those customary and reasonable closing costs necessary to close the Mortgage. Charges may not exceed the actual costs.”
And there are additional instructions to the lender about verifying the source of closing costs.
HUD 4000.1 advises, “The Mortgagee must document all funds that are used for the purpose of qualifying for or closing a Mortgage, including those to satisfy debt or pay costs outside of closing.”
Sourcing the funds isn’t all The Mortgagee must verify and document that the Borrower has sufficient funds from an acceptable source to facilitate the closing.”
You won’t be able to get a specific dollar amount in terms of closing costs until you are closer to a deal. But when you shop around for a lender you will be able to get a loan estimate showing you roughly what the costs may be, subject to change depending on your choices and other factors.
The estimate is a good thing to use when comparing lenders. Just because you won’t be able to get a hard commitment on a specific dollar amount from the lender doesn’t mean you won’t get plenty of useful information to use. These estimates are crucial for borrowers and lenders issue them frequently. Don’t be shy about shopping around!
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