✏️ Editor’s Note: Realtor Associations, agents, and MLS’ have started implementing changes related to the NAR’s $418 million settlement. While home-sellers will likely save thousands in commission, compliance and litigation risks have significantly increased for sellers throughout the nation. Learn how NAR’s settlement affects home buyers.
FHA loans are the go-to choice for most homebuyers in the US. Typically, you have to pay 2% to 6% in closing costs on conventional loans. Moreover, you have to pay the same on FHA loans.
Although it’s easier to qualify, FHA loan closing costs can be a burden.
📉 closing costs on FHA Loans
- Closing costs on an FHA loan generally amount to 2% to 6% of the purchase price.
- The buyers can opt for loan assistance programs. Also, they can ask for seller concessions, receive gifts, etc. to reduce the burden of closing costs.
- FHA closing costs are separate expenses and cannot be included in the down payment.
What Are FHA Closing Costs?
FHA mortgage closing costs are additional expenses that the lender and the stakeholders charge the borrower. These costs are the same as those charged on conventional loans. The buyer can roll them in with their FHA loan.
When you apply for an FHA loan, your lender will give you a loan estimate. This will include a rough tally of closing costs. The lender will give you an in-depth disclosure and the final tally of the FHA closing costs three days before your closing date.
How Much Are FHA Closing Costs?
Closing costs on FHA loans may vary depending on multiple factors. Generally, these amount to 2%–6% of the purchase price. For example, if a home costs $500,000, you must set aside $10,000 to $30,000 for closing costs.
Now, you can estimate the closing costs on the home price. Houzeo’s home price estimator provides a quick market value to determine your closing costs.
List of Closing Costs on an FHA Loan
Closing costs involve a number of charges and fees. Some of these are:
Mortgage Insurance Premium (MIP)
It’s an obligation for you to pay mortgage insurance to protect the lender in case you default. This is usually 1.75% of the purchase value and is one of the FHA loan upfront costs. However, it can be included in your FHA loan.
If you roll it in with your loan, you’ll pay interest on it. This will increase the overall cost of your loan.
Lender Fees
This is the fee that your lender charges for assisting you during the mortgage process. Lender fees may include:
- Mortgage origination fee
- Underwriting fee
- Mortgage rate lock fee
- Discount points
- Document preparation fee
- Fee for FHA 203(k) renovation loans
Third-Party Fees
Apart from the lender’s fee, there are additional expenses that other stakeholders charge, these include:
- Title insurance fee
- Notary fee
- Recording fee
- Appraisal fee
- Credit report fee
- Courier fee
- Attorney fee
- Flood certification fee
Prepaid Expenses
Prepaid expenses aren’t technically closing costs. However, they should be considered as such because they must be paid at the same time as closing costs.
- Prepaid insurance and taxes
- Prepaid interests
- Escrow deposits
Find Homes for Sale Under Your Specific Budget
Who Pays Closing Costs on FHA Loans?
There are more upsides than downsides to FHA loans. For example, it allows the buyer to avoid hefty upfront costs. In most cases, it’s the buyer’s responsibility to pay closing costs for FHA loans. However, the buyer doesn’t have to incur all the costs alone.
How Much Mortgage Can I Afford?🏡
Select Your Loan Type
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New Home Purchase
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Mortgage Refinance
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Cash-out Refinance
Ways to Reduce FHA Loan Closing Costs
Buyers can follow the below-mentioned strategies to reduce FHA loan closing fees:
Compare Mortgage Lender Fees
Not all lenders charge the same fees. It’s best to study the market rates and find out which lender is charging the lowest.
Explore FHA Closing Cost Assistance Programs
There are various programs that help first-time homebuyers and low and moderate-wage earners buy homes. These programs have the backing of the government and other non-profit organizations.
Moreover, the Department of Housing and Urban Development (HUD) records all available assistance programs.
Ask for Seller Concessions
You can ask for seller concessions in a buyer’s market. The FHA allows sellers or third parties to pay up to 6% of the purchase price. You can use this credit toward the payment of closing costs or other prepaid expenses.
Ask for Gifts
The FHA allows the buyer to receive financial gifts from family members, close friends, employers, labor unions, etc. If you receive a financial gift, you must present the gift letter to your lender. This letter should contain the relevant information about the giver.
» FHA Gift Funds: Read to know more.
Bottom Line
FHA loans are an attractive financing option for homebuyers. However, they come with closing costs that the buyer has to pay. Your lender will give you a loan estimate that will include a rough calculation of your closing costs.
The down payment on the home doesn’t include the closing costs for FHA loans. Nonetheless, you can reduce your closing costs in multiple ways with seller concessions, gift funds, etc.
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Frequently Asked Questions
Can closing costs be included in FHA loans?
Yes, you can include closing costs with FHA loan and repay them with the principal amount. This is called an FHA no-closing cost loan.
Are FHA closing costs included in the down payment?
No, down payments are not inclusive of closing costs.
How long does it take to close an FHA loan?
On average, it takes around 44 days to close on an FHA loan. On the other hand, FHA refinances can take up to 46 days to close.
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