Home Loan Closing Costs

When you buy a home with an FHA mortgage, cash for closing costs and your down payment is required. It would be easy to assume you simply give the lender cash in the specified amount and that’s the end of the story.

But there are loan rules about down payment funds you should know about, and closing cost issues to anticipate. It helps to think like a lender about these issues, as we’ll see below.

Anticipate the Costs

Closing costs on your loan could range between 2% and 5%, and it pays to add a little extra in for contingencies. What kind of closing costs should you expect?

The lender’s fees, the cost of any legal help you hire for the transaction, appraisal fees, inspection fees, flood zone determination fees where applicable, and other costs. Save early for these expenses, you’ll be glad you did. When comparing lenders, be sure to ask each one what their typical estimated closing costs are for budgeting purposes.

Your FHA loan down payment will be either 3.5% or 10% depending on FICO scores and other credit factors.
 
Closing Costs: Know What the Seller Pays

Did you know your seller may offer up to six percent of the sale price of the home toward closing costs? This is common advice you’ll find in plenty of online resources; what’s not so common is knowing that in a seller’s market where there is more demand for houses than there is supply of homes to sell? Those seller concessions may be much harder to come by. Remember that when budgeting.

Sources of Down Payment Funds

Your down payment funds must come from approved sources such as your savings, checking, cashed-in stocks or bonds, or similar resources. Your lender will require you to certify in writing that you have not used prohibited sources for your down payment funds.

Seasoning the Money

When a lender talks to you about “seasoning” a down payment, what they mean is that it’s best to have your down payment funds set aside and identified as such for a minimum of 60 days. 
If a big amount of money suddenly appears in your bank account and you identify that as your down payment money, the lender is obligated to show that the money comes from approved sources as discussed above. If you can’t season the funds, you may be required to provide a written statement asserting that the money is sourced properly.

Ask your loan officer about that financial institution’s seasoning requirements and plan accordingly.

Down Payment Assistance

It is true that FHA loans permit down payment assistance. It is also true that such help cannot come from any third party that stands to gain from the transaction, including the seller. That’s the Home Loans 101 advice you’ll read in many places, but what’s not so obvious is that some home loan transactions may not permit down payment assistance.

That will be a lender issue, as the FHA itself does not prohibit down payment assistance on construction mortgages, for example. But a lender might. If you need down payment help, be sure to compare lenders to see who is willing to work with you and your circumstances.

There is nothing wrong with needing or using down payment assistance, but you’ll need to make sure your lender will accept that assistance as part of your transaction. Not all participating lenders offer all available FHA loan products, and not all transactions may be right for down payment programs in your area.

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