December 10, 2013
When you learn about FHA home loans, the phrase “cash required to close” is one you’ll soon become familiar with. One of the reasons so many experts recommend taking as much time as possible to prepare for a home loan? Giving yourself enough time to save up the money required to close the deal.
The required 3.5% down payment is part of that, as are the payments you’ll need to make for appraisals and any required compliance inspection. But there are other costs as well; fortunately FHA loan rules in HUD 4155.1 instruct the lender to prepare an estimate sheet to give the borrower a better idea of what these expenses are.
According to Chapter Five of HUD 4155.1, “For each transaction, the lender must provide the initial Good Faith Estimate (GFE), all revised Good Faith Estimates and a final HUD-1 Settlement Statement, consistent with the Real Estate Settlement Procedures Act (RESPA), to determine the cash required to close the mortgage transaction.”
Furthermore, “In addition to the minimum downpayment requirement described in HUD 4155.1 5.B.1.a, additional borrower expenses must be included in the total amount of cash that the borrower must provide at mortgage settlement.”
What are these additional expenses? This is not a complete list, but you can reasonably expect some or all of the following as described in Chapter Five:
• closing costs, such as those customary and reasonable costs necessary to close the mortgage loan
• prepaid items
• discount points
• non-realty or personal property
• upfront mortgage insurance premium (UFMIP) amounts
• repairs and improvements
• real estate broker fees
• mortgage broker fees
• premium pricing on FHA-insured mortgages, and
• yield spread premiums.
The rules for this sort of estimate is designed to help the borrower get ready for closing with an estimate based on all known fees and charges required to close–and that includes “loan origination” charges, or expenses that come as a cost of doing business with that lender. Chapter Five says, “Lenders must include the sum of all fees and charges from origination-related charges in Box 1 on page 2 of the Good Faith Estimate (GFE).”
The Good Faith Estimate is a document that’s prepared for borrowers who are serious about getting a home loan. You can get a good idea of the general expenses related to closing on an FHA mortgage by speaking to a lender or talking to a real estate agent about what to expect.
Do you have questions about FHA home loans? Ask us in the comments section. You can apply or get preapproved for an FHA loan at www.FHA.com, a private company and not a government website.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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