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FHA Loan Closing Costs: What They Are and How Much You’ll Pay

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The Federal Housing Administration (FHA) makes it easier to get a mortgage than other popular types of financing. The catch: Lenient borrowing requirements means extra FHA closing costs.

Before you apply for an FHA loan, learn more about the closing costs you’ll pay.

What are FHA closing costs?

FHA closing costs are fees charged for you to take out an FHA loan. You’ll pay many of the same types of fees charged on other home loan types, including credit report fees, underwriting costs and home appraisal fees.

However, because FHA lending requirements cater to borrowers with much lower credit scores than other programs, the mortgage insurance costs are higher. In fact, FHA loans are more likely to be considered “higher-priced mortgage loans” (HPMLs) because of the high cost of FHA mortgage insurance.

List of current FHA closing costs

There are three closing costs unique to FHA loans: the upfront mortgage insurance premium, the annual mortgage insurance premium and the FHA appraisal.

FHA upfront mortgage insurance premium

The FHA upfront mortgage insurance premium (UFMIP) is a one-time, lump-sum charge that is due at closing and typically added to your loan amount. The standard cost is 1.75% of your loan amount — for example, if you borrow $300,000 with an FHA loan, the UFMIP charge is $5,250 ($300,000 x 0.0175 = $5,250).

The UFMIP premium is the same percentage regardless of your loan amount or down payment, with the following exceptions:

  • You’ll pay 0.01% of the loan amount for an FHA streamline refinance
  • You’ll pay between 2.344% and 3.80%, depending on the loan term, for FHA loans on Hawaiian home lands
  • You won’t pay a fee for FHA loans on Indian lands

FHA annual mortgage insurance premium

The annual mortgage insurance premium (MIP for short) is an ongoing charge that costs between 0.45% to 1.05%, and gets divided by 12 and added to your monthly mortgage payment. The amount you’ll pay depends on your down payment and repayment term. In general, a higher down payment and/or shorter term will equal a lower monthly MIP charge. You’ll pay this type of FHA mortgage insurance for the life of your FHA loan, unless you make at least a 10% down payment at closing.

Most FHA borrowers choose a 30-year fixed-rate term; the FHA MIP chart below shows the different MIP costs based on your loan amount and your loan-to-value (LTV) ratio, which measures how much you borrow compared to your home’s value. For example, if you borrow $90,000 on a house that’s worth $100,000, your LTV ratio is 90% (90,000/100,000 = 0.90).

FHA MIP chart: Loan terms longer than 15 years

Loan amount LTV ratio MIP cost
Less than or equal to $625,500 ≤ 90% 0.80%
> 90%, but ≤ 95% 0.80%
> 95% 0.85%
More than $625,500 ≤ 90% 1.00%
> 90%, but ≤ 95% 1.00%
> 95% 1.05%

FHA appraisal costs

Most FHA loans require an FHA appraisal completed by an FHA-approved appraiser to verify both the value and condition of your home. You may spend between $300 and $500 for an FHA appraisal, depending on the home’s size and location. FHA appraisers have to verify that the home meets FHA health and safety standards and determine the market value, based on nearby home sales.

One unique feature of FHA loans: If your appraisal comes in lower than the purchase price you agreed to, the FHA amendatory clause allows you to cancel the transaction and receive all of your upfront money back if you decide you want to walk away from buying the home.

Standard loan closing costs

Origination fee. When a lender issues a loan, it’s called an “origination.” The fee may include processing, underwriting and funding your mortgage.

Credit report. A fee to get a copy of your credit scores and reports.

Flood certification fee. A fee to verify if the home is in a federal flood zone and to determine if flood insurance is required.

Flood monitoring fee. An additional fee for monitoring the flood status of a property, depending on the flood determination.

Tax monitoring. A fee that sets up a monitoring service to track whether you’re making tax payments on time.

Lender’s title insurance. The lender requires you to pay for a title insurance policy to protect them against any title problems, including judgments or tax liens. You may also want to buy an owner’s policy for additional protection.

Discount points. This upfront fee is charged as a percentage of your loan amount to get a lower interest rate.

Escrow account fee. If you want your property taxes and insurance included in your monthly mortgage payment, the lender collects a portion of your homeowners insurance, monthly mortgage insurance premium and property taxes to set up an account to pay those items.

Prepaid fees. Prepaid fees are costs you pay before they’re due. For example, this can include prepaying the first year of homeowners insurance premiums.

Transfer taxes. All but 13 states in the U.S. charge transfer taxes if ownership is transferred from one owner to another. State laws may set rules on who can pay them, and in some cases you may be exempt from them. However, they can make up a big chunk of your total closing costs on a mortgage.

How much will I pay for FHA closing costs?

You’ll typically pay between 2% and 6% of your loan amount toward closing costs on any mortgage loan, depending on your loan amount. Although FHA mortgage insurance costs are higher on FHA loans versus conventional loans, FHA interest rates tend to be lower than ones for conventional mortgages. However, once you add the UFMIP and MIP costs, the annual percentage rate (APR) may make them more expensive than a conventional loan.

There is one thing that will cap your FHA closing costs: The FHA loan limits in your area. In most parts of the country, 2022 FHA loan limits are maxed out at $420,680 for a single-family home, compared to $647,200 for a conventional loan. That means the most a 1% origination fee will cost you is $4,206.80 for a FHA loan, versus $6,472 for a conventional loan.

Here are some highlights of CoreLogic’s ClosingCorp 2021 report on purchase and refinance closing costs:

  • Higher home prices drive up purchase closing costs. Homebuyers spent an average of $6,905, including transfer taxes, for closing costs in 2021. That’s a 13.4% increase over the prior year. The average buyer’s fees expressed as a percentage of the average sales price in 2021 were 1.81%.
  • Refinance mortgage closing costs tend to be lower than purchase closing costs. Homeowners spent an average of $2,375 on closing costs (not including recording or special taxes) in 2021 to refinance a home in the U.S. That means most homeowners spent less than 1% on closing costs to refinance the average loan amount of $304,909 in 2021.

How to lower FHA closing costs

Although you can’t avoid FHA closing costs, there are ways you can reduce the amount you pay out-of-pocket.

Ask for a gift. A relative, friend, employer, charity or local government agency providing closing cost assistance for first-time buyers can gift you money toward your FHA closing costs. Proof of gift funds must be documented and a signed gift letter is required.

Apply for closing cost assistance. Banks and housing finance agencies in your area may offer FHA closing cost assistance. There may be income limits and other restrictions, so read the fine print before you apply.

Ask the seller to pay them. Up to 6% of your FHA closing costs can be paid by the seller, and the credit can be used to pay the UFMIP.

Roll the costs into your loan. There are two ways to finance FHA closing costs on a purchase loan: Increase your interest rate and ask the lender to pay the fees, or increase your loan amount to pay them. To roll in closing costs on a regular FHA refinance loan, you can only increase your loan amount. For an FHA streamline refinance, your only option is to have the lender pay your closing costs with a lender credit in exchange for a higher rate. This option is also known as a no-closing-cost loan.

Within three business days of completing a loan application, your FHA-approved lender must provide you with an FHA loan estimate, so you can review the terms and closing costs. Keep a copy of this document to compare to the closing disclosure you’ll receive three days before closing.

 

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