FHA Closing Costs: Calculation and Pay

Buying a home is an exciting journey, but it’s also a process that involves various financial considerations. Among these considerations are closing costs, which can add up significantly and catch many homebuyers off guard. If you’re considering an FHA loan, understanding FHA closing costs is crucial to navigating the homebuying process smoothly. Let’s explore what FHA closing costs are and howmuch you will pay for your home purchase.

FHA Closing Costs Calculator:

FHA Closing Cost Calculator

Others Details on FHA Closing Cost:

Charges	Percentage of Home Price
Lender and Origination	0.9%
Title and Settlement	0.7%
Other Charges	0.12%

Item	Cost Range
Upfront Mortgage Insurance Premium	1.75% of the loan amount
Annual Mortgage Insurance	0.15% to 0.75% of the loan amount
FHA Appraisal	$400 to $700

Upfront Mortgage Insurance Premium Example:

Given Loan amount: $280,000 (for the example of an FHA streamline refinance)

UFMIP Percentage:

For an FHA streamline refinance: 0.01% of the loan amount

Calculation: UFMIP Fee = Loan Amount × UFMIP Percentage

Substituting the values: UFMIP Fee = $280,000 × 0.0001

UFMIP Fee = $28

So, for an FHA streamline refinance with a loan amount of $280,000, the upfront mortgage insurance premium (UFMIP) fee would be $28.

Monthly FHA Annual Mortgage Insurance Premium (MIP) calculation example:

Given:

Loan amount: $200,000
Annual MIP rate: 0.50% (for example)

Calculation:

Determine the annual MIP amount: Annual MIP = Loan amount × Annual MIP rate = $200,000 × 0.005 = $1,000
Convert the annual MIP to a monthly amount: Monthly MIP = Annual MIP / 12 = $1,000 / 12 = $83.33 (rounded to the nearest cent)

So, for a loan amount of $200,000 and an annual MIP rate of 0.50%, the monthly FHA Annual Mortgage Insurance Premium (MIP) would be approximately $83.33.

Mortgage Insurance Premium costs for FHA loans with loan terms longer than 15 years

Loan Amount	LTV Ratio	MIP Cost
≤ $726,200	≤ 90%	0.50%
	> 90%, but ≤ 95%	0.50%
	> 95%	0.55%
More than $726,200	≤ 90%	0.70%
	> 90%, but ≤ 95%	0.70%
	> 95%	0.75%

based on different loan amounts and loan-to-value (LTV) ratios.

What are FHA Closing Costs?

FHA closing costs are the fees and expenses associated with finalizing a mortgage loan insured by the Federal Housing Administration (FHA)._[2] These costs typically include a wide range of expenses, such as lender fees, third-party services, prepaid expenses, and escrow deposits.

In 2024, closing costs for FHA loans typically span between 2% and 6% of the property’s purchase price. These expenses are separate from the mandatory 3.5% minimum down payment stipulated by FHA loan requirements_.[1]

While FHA loans offer advantages such as lower down payment requirements and more flexible credit score criteria, it’s essential to be aware of the closing costs associated with these loans.

Costs	Details
Typical Closing Costs	2% to 6% of the loan amount, depending on loan amount
Average Home Price	$330,200 at the end of 2022
Average Cost to Close	$6,604 to $19,812
FHA Loan Limits	$472,030 for a single-family home in most parts of the country
Maximum Origination Fee	$4,720 for an FHA loan, $7,262 for a conventional loan
Purchase Closing Costs	Homebuyers spent an average of $6,905 for closing costs in 2021, representing 1.81% of average sales price
Refinance Closing Costs	Homeowners spent an average of $2,375 on closing costs in 2021 to refinance a home

FHA Upfront Mortgage Insurance Premium(UFMIP)

The FHA upfront mortgage insurance premium (UFMIP) is a single, upfront fee payable at the closing of your loan, typically rolled into your loan amount. It stands at 1.75% of your total loan amount. For instance, if you secure a $350,000 FHA loan, your UFMIP charge would amount to $6,125 ($350,000 x 0.0175 = $6,125).

The UFMIP percentage remains consistent regardless of your loan amount or down payment, with a few exceptions:

For an FHA streamline refinance, you’ll pay a fee equal to 0.01% of the loan amount.
For FHA loans on Hawaiian home lands, the UFMIP fee ranges from 2.344% to 3.80%, depending on the loan term.
There is no UFMIP fee for FHA loans on Indian lands.

Understanding FHA Annual Mortgage Insurance Premium (MIP)

The annual mortgage insurance premium (MIP) is a recurring expense associated with FHA loans, ranging from 0.15% to 0.75%. Here’s what you need to know about this essential aspect of FHA financing:

Recurring Expense: MIP is an ongoing charge calculated as a percentage of your loan amount, typically between 0.15% to 0.75%. This annual amount is divided by 12 and added to your monthly mortgage payment.
Factors Affecting MIP: The specific amount you’ll pay in MIP depends on factors such as your down payment and the duration of your repayment term. Generally, opting for a higher down payment and/or a shorter loan term will result in a reduced monthly MIP charge.
Persistent Requirement: It’s important to note that FHA mortgage insurance persists for the entirety of your FHA loan, unless you make a down payment of at least 10% at closing. In such cases, MIP payments are only required for the initial 11 years.
Term Preference: Most FHA borrowers opt for a 30-year fixed-rate term. However, the duration of your loan term impacts your MIP payments.

Key Points to Remember:

MIP is a recurring expense, typically ranging from 0.15% to 0.75% of your loan amount.
Higher down payments and shorter loan terms lead to reduced monthly MIP charges.
FHA mortgage insurance persists for the entire loan term unless you make a down payment of at least 10% at closing.
The FHA MIP chart outlines varying MIP costs based on your loan amount and loan-to-value (LTV) ratio, which measures the amount you borrow relative to your home’s value.

Common Components of FHA Closing Costs

Origination Fees: 9 % Charged by the lender for processing the loan application and underwriting the mortgage.
Appraisal Fees: $400 to $700 Paid to assess the value of the property being purchased.
Credit Report Fees: Covers the cost of obtaining your credit report to assess your creditworthiness.
Title Insurance: 7% Protects against any issues with the property’s title, ensuring a clear ownership history.
Recording Fees: Charged by the local government to record the mortgage and deed.
Prepaid Expenses: Includes property taxes, homeowners insurance, and prepaid interest collected at closing to cover the initial period of homeownership.
FHA Upfront Mortgage Insurance Premium (UFMIP): Required for FHA loans and typically financed as part of the loan amount or paid upfront-1.75% of the loan amount.

Discount Points: Optional fees paid upfront to lower the interest rate on the mortgage, thereby reducing monthly payments.

5 steps to Reduce FHA closing Costs

Ask for a Gift: Seek financial assistance from sources like family, friends, employers, charities, or local government agencies. You can receive up to $15,000 per year from each donor without incurring gift tax. more
Apply for Assistance: Check with banks or housing finance agencies for programs offering FHA closing cost assistance. Some programs may provide grants ranging from $2,500 to $10,000.
Negotiate with the Seller: Sellers can contribute up to 6% of the home sale price towards your closing costs. For a $250,000 home, this could amount to $15,000.
Seek a Lender Credit: Some lenders may offer a credit to cover part or all of your closing costs. This credit can range from 1% to 5% of the loan amount, depending on the lender and loan program.
Roll Costs into Your Loan: With a no-closing-cost loan, closing costs are rolled into the loan amount. This could increase your loan amount by $5,000 to $10,000 or more, depending on the size of your loan and the specific closing costs.

Remember, your FHA-approved lender must provide a loan estimate within three business days of your application, allowing you to review the terms and closing costs. Keep this document for comparison with the closing disclosure received three days before closing.

Factors Influencing FHA Closing Costs

Several factors can influence the total amount of FHA closing costs, including the loan amount, property location, lender fees, and the specific terms of the mortgage. Additionally, borrowers may have the option to negotiate certain fees or shop around for lower-cost services to reduce closing expenses.

Preparing for FHA Closing Costs

Before closing on an FHA loan, it’s essential to review the Loan Estimate provided by the lender, which outlines the estimated closing costs associated with the mortgage. This document allows borrowers to compare offers from different lenders and understand the breakdown of fees and expenses involved in the home purchase.

Bottom line:

Navigating FHA closing costs is an integral part of the homebuying process for those considering an FHA loan. By understanding the various components of closing costs and their implications, borrowers can better prepare for the financial responsibilities associated with purchasing a home. Working closely with a knowledgeable lender and real estate agent can help streamline the process and ensure a successful homebuying experience.