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JPLDesigns/Getty Images April 19, 2022 Suzanne De Vita is the mortgage editor for Bankrate, focusing on mortgage and real estate topics for homebuyers, homeowners, investors and renters. Bankrate logo The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo The Bankrate promise
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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. When applying for an to buy a home, you’ll need more than just 3.5 percent of the purchase price as a down payment. As you budget, it’s important to make sure you factor in FHA , too.
What are FHA closing costs
The closing costs on FHA loans are the fees charged by the mortgage lender and the various other players involved in the loan process, and typically total between 2 percent and 6 percent of the home’s sale price. These fees also include an upfront premium and items. Closing costs vary , however, and can be much higher in states with higher tax rates. When you apply for a mortgage, you’ll get a from your mortgage lender specific to your loan. Then, three days before you’re set to become the official owner, you’ll get a with a final breakdown of those fees.
How much are FHA closing costs
There is no set amount for how much you’ll pay in FHA closing costs. One of the key factors that impacts your total closing cost tab is the size of your mortgage. For example, if your loan is for $300,000, and your lender charges an origination fee of 1 percent, that portion of your closing costs will be $3,000. If you can find a lender that charges just 0.5 percent, you can shrink that item to $1,500. You’ll have to pay other companies, as well, for an appraisal, title services, flood zone certification services and more. Overall, you’ll want to budget between 2 percent and 6 percent of the loan amount to make sure you’re leaving enough room to cover these fees. On a $300,000 loan, that falls between $6,000 and $18,000.
List of FHA closing costs
Mortgage insurance premium MIP
When you take out an FHA loan to buy a home, you are required to pay FHA mortgage insurance premiums (MIP), which include: Upfront premium: The upfront MIP is part of your FHA closing costs and equals 1.75 percent of the loan principal. If you’re borrowing $300,000, your upfront mortgage insurance cost would be $5,250. However, you don’t have to pay this in cash — it can be wrapped into the loan if you don’t have enough money to cover it as part of your closing costs. Keep in mind, though, that doing so increases the amount you’ll finance and need to pay back. In this case, your loan is now for $305,250, with accompanying interest. Annual premiums: Atop the upfront charge are annual MIP payments, ranging from 0.45 percent to 1.05 percent of the loan principal, included in your monthly mortgage payment. The premium charged is adjusted annually based on what you still owe. Although you’re paying the premiums, FHA mortgage insurance protects the lender in the event you stop making payments on your loan; it doesn’t protect you. Lender fees
Not all mortgage lenders charge the same fees. Depending on which you work with, these fees can sometimes be negotiated down or even waived, and some lenders don’t impose any fees at all. Ask about these costs as you compare loan options: Underwriting fee Application fee Document preparation fee to reduce your overall interest rate Third-party fees
Your lender isn’t the only company involved in dealing with your mortgage application. There are other services you might need to pay for in your closing costs, including: Title search Appraisal Notarization Credit check Deed recording Flood-zone certification When your lender provides an estimate of your closing costs, you’ll be able to see which costs are fixed and which costs are for services you can shop around for. Some third-party fees might fall under the latter category, so you can potentially save money if you find a lower-cost provider. Prepaids
Prepaid items are the costs you pay in advance, and they’re actually different from closing costs. Regardless, you need the money to cover them, and sometimes, the seller might be willing to pay for a portion. The prepaids can include: Tax and homeowners insurance Flood and hazard insurance premiums (if your closing date falls prior to the start of your regular monthly payments) How to save on FHA closing costs
Whether you’re looking to reduce the sting of closing costs now or hoping to lower the lifetime cost of your loan, consider these six tips to manage the money involved in your FHA mortgage. 1 Compare lender fees
Mortgage lenders aren’t all created equal. Shop around and ask for fee transparency upfront to get a sense of what different charge and identify which lenders have the lowest costs. 2 Roll the closing costs into the loan
To avoid paying for closing costs upfront, ask your lender about rolling them into your mortgage. You won’t avoid the closing costs on FHA loans this way, since you’re now financing them (with interest), but you won’t have to pay them out of pocket, which can make sense if you’re short on cash for closing. If you do roll them into your loan, you’ll have a bigger monthly mortgage payment, and pay more for your mortgage overall. This move is really about determining what’s more important to you: avoiding a payment now, or paying for it more in the future. 3 Ask the seller to pay some of the closing costs
Sellers are allowed to pay some of a buyer’s closing costs, usually capped at 6 percent of the sale price. Whether the seller decides to grant this to the buyer depends on the local housing market, how many other buyers are interested in the property and other factors. If a seller has many offers to choose from, for example, there won’t be as much incentive to offer to pay some of the costs. It’s important to note that this is a tough ask to make in today’s housing market, since sellers are garnering lots of offers these days. Every neighborhood is different, though, so if the seller doesn’t have other fish on the line and really wants to make a deal, you might have some leverage that you can convert to savings. 4 Look into closing cost assistance
Most states have to help lighten the load of closing costs and a down payment, especially for low- and moderate-income borrowers and first-time homebuyers. Bankrate has a list of these types of to help you explore your options. 5 Get a gift
FHA loans allow for financial support from a few different sources: a family member, close friend, employer, labor union or a charity organization. If one (or more) of these sources is willing to help you pay for part of your closing costs or down payment, you’ll need to provide your lender a to verify that. This letter should include the giver’s contact information, the gift amount and a disclaimer that you won’t need to repay them. 6 Buy points
Discount or mortgage points are fees you can pay to lower your loan’s interest rate, typically by 0.25 percent per point. One point costs 1 percent of the loan principal. So, if you’re borrowing $300,000, you’d pay $3,000 for one point. This strategy won’t reduce your upfront closing costs — in fact, you’ll need more cash since you’re paying for points upfront. However, it can make a huge difference in the long period (15 to 30 years) that follows closing day by saving you a large chunk in interest. SHARE: Suzanne De Vita is the mortgage editor for Bankrate, focusing on mortgage and real estate topics for homebuyers, homeowners, investors and renters. Related Articles