Home Loan Closing Costs
June 15, 2023
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.
------------------------------
RELATED VIDEOS:
Home Equity Can Secure Your Second Mortgage
Consider the Advantages of Discount Points
FHA Limits are Calculated and Updated Annually
FHA Loan Articles
October 31, 2024When buying a home for the first time, it helps to know how long the process can take. How do you know if your appraisal report is delayed if you don’t know how long the FHA allows for the process to be completed? How long does it take to get from the final offer to closing day? A “typical” FHA loan process may take up to 45 days from start to finish. Several factors can influence this timeline.
October 30, 2024Just because an FHA loan is designed to be more lenient with FICO scores and require a lower down payment doesn’t mean the house you buy with that loan is less than ideal. Did you know that FHA loans have minimum property standards to ensure the home is safe and livable? Those standards require the home to have an “economic life” for the entire term of the loan so you can freely sell the property later on if you choose to do so.
October 29, 2024Buying a home with an FHA mortgage is a major life decision, and preparation is essential before you start house hunting or consider making an offer on a property.
How to get started? In the early stages, establishing your budget and how much work you need to do on your credit is key. But once you have gotten past the initial phase of that planning you’ll want to consider the house itself and what you want from it.
October 25, 2024Mixed-use properties combine residential and commercial spaces. Some borrowers applying for FHA home loans want to know if purchasing such a property using an FHA single-family home loan is possible. The FHA does allow the use of its loans for mixed-use properties, but certain conditions must be met.
October 24, 2024Buying your first home is a major milestone. If you use an FHA mortgage to buy your home, you’ll have two types of insurance to consider. One type is the FHA-required mortgage insurance premium, which is paid for 11 years or the loan's lifetime, depending on your down payment, loan term, and other variables.
