The process of buying a home is not one that is completed as quickly or easily as a transaction at Walmart. Because there are tens and hundreds of thousands involved, it takes a team of people working together to complete the deal. This means that there will be other fees involved on top of the price of the home. These fees vary per deal and per lender. In fact, there are a few dramatic differences when going through the Federal Housing Administration for your loan rather than a conventional lender. Following is a breakdown to better understand the FHA closing costs and fees that come with a home purchase.
Typical Loan Fees and FHA Closing Costs
When purchasing a home through the federal programs there are about fourteen possible fees that you may have to pay in addition to the price of the home. These are typically charges for inspections and paperwork. The first fee you may encounter is the loan original fee. When purchasing through federal programs, this fee cannot be more than 1% of the loan amount. However, it is a fee required by the lender to pay for the costs of processing the loan. You will also have to pay the appraisal fee. Every home purchased cannot have the contract completed until a certified appraiser looks over the home and determines that its value is at least that of the requested amount on the loan. Normally an appraisal will cost anywhere from three to five hundred dollars.
Sometimes you will be given a discount on the loan. When this occurs, you will be charged a ‘discount’ fee, which is a one-time fee charged for the lowering of the amount. You will also be charged a fee for the lender’s inspection of the home, for the mortgage insurance application, and for a credit report. Additional fees may include a loan assumption fee, which is charged if you assume the loan from another person, a mortgage broker fee (if you go through a mortgage broker), and a wire fee if you have money wired in for the purchase. There are underwriters hard at work to process the approval of your loan; they will have a fee in place as well. And last but not least, you will have to make sure the home is flood certified. This means there is one more fee in place for a flood certification inspection.
Closing on Your Home
All of the loan fees listed above are part of FHA closing costs that will have to be paid out when the loan is completed. These are typically one time payouts and they are in addition to the price of the home. In order to maintain the loan, you will have to pay monthly fees as well. The first monthly payment is the interest. This will be part of your mortgage payment every month. You will also be required to get home and mortgage insurance and maintain that in monthly or annual payments. Depending on the area you live in, you may need to look into the purchase of flood insurance as well. Upon purchase of a home, it becomes your responsibility to keep the home properly insured against possible natural disaster.
While these are some of the costs that are pretty much standard for all federal housing loans, the list is not comprehensive simply because each situation is different and each lender will have fees that are more specific to the situation. There is the possibility that you will be looking at additional insurance payments and additional fees to process the paperwork that comes with acquiring a loan.
It’s important to note that while the amount of fees may seem excessive, they really aren’t enough to drive the price of the home up to the point where it is unaffordable. Yes, FHA closing costs can be in the thousands, which is typical for all loans across the board. But the one difference with a federal loan vs. a conventional loan is that the federal loan costs can sometimes be rolled into the mortgage, which means you may be able to pay them off over time as opposed to coming up with a lump sum at the time of closing. This can reduce the impact on your finances, giving you just a little bit of breathing room before you have that first mortgage payment. Just remember, before you sign on your loan, discuss the additional fees with your loan officer so you understand what you are paying and why you are paying it. That way if there are any questions you are unsure of, you will be able to get them resolved before you become a homeowner.