FHA loan closing costs: What they cover and how much you'll pay

Core Insights - The article discusses the various costs associated with FHA loans, particularly focusing on closing costs, which are essential for home buyers to understand when financing a home purchase [1][2]. FHA Loan Closing Costs - FHA closing costs include a mortgage insurance premium (MIP) of 1.75% paid upfront at closing, along with ongoing annual MIP as part of monthly payments [2][3]. - Average FHA closing costs range from 3% to 4% of a home's price, translating to approximately $12,000 to $16,000 for a median-priced home valued at $400,000 [3]. Breakdown of Costs - Specific fees include mortgage lender fees (application, origination, processing, underwriting), credit report fees, home appraisal costs (typically $400 to $700), prepaids (homeowners insurance, property taxes), property survey fees, recording fees, real estate attorney fees, real estate agent commissions, title search and insurance, discount points, and wire/notary/courier fees [3][4]. Cost Management Strategies - Home buyers can reduce FHA closing costs by rolling the MIP into the loan amount, which increases the loan balance but can ease upfront payment burdens [5][6]. - Shopping around for different lenders and comparing Loan Estimates can help minimize costs, as lenders have varying rates and fees [7]. - Utilizing closing cost assistance programs from state and local housing agencies can provide financial support for buyers [8]. - Family members can contribute gift funds to help cover closing costs, provided proper documentation is maintained [9]. - Sellers may be willing to contribute to closing costs, especially in a buyer's market [12]. FAQs on FHA Closing Costs - FHA loan closing costs are generally comparable to other loan programs, but they include the additional upfront MIP [13]. - Some FHA closing costs can be rolled into the loan amount, although this may increase monthly payments and interest costs [14]. - The primary downside of FHA loans is the ongoing MIP, which adds to the monthly financial burden for borrowers [15].