Can a borrower use closing costs as part of his or her down payment? What does the FHA rulebook say about interest rate lock-in fees? There are many rules and regulations–borrowers and lenders alike should be familiar with the guidelines.
For example, when it comes to the down payment question, FHA loan rules are clear that the down payment money is a separate and distinct thing from closing costs. Specifically, HUD 4000.1 states:
“The Mortgagee is not permitted to use closing costs to help the Borrower meet the Minimum Required Investment (MRI).”
So that means an FHA borrower will need to budget for both closing costs and the down payment. Certain fees and expenses–those charged for services rendered–may not be inflated in the closing cost calculations. Only the specific expense for the service (such as appraisal fees, credit report fees, etc.) may be charged to the borrower:
“The Mortgagee may charge the Borrower reasonable and customary fees that do not exceed the actual cost of the service provided. The Mortgagee must ensure that the aggregate charges do not violate FHAs Tiered Pricing rules.”
FHA loan rules do permit the lender to charge an “origination fee”, a fee for discount points, and a fee to lock in a mortgage loan interest rate. There is a rule for lenders associated with the interest rate lock:
“The Mortgagee may charge the Borrower lock-in and rate lock fees only if the Mortgagee provides a lock-in or commitment agreement guaranteeing the interest rate and/or discount points for a period of not less than 15 Days prior to the anticipated closing.”
Discount point fees, mortgage rate lock-ins and other expenses may vary from lender to lender, and depending on the transaction, from loan to loan. Your expenses on one mortgage loan product may differ from a newer transaction. FHA loan rules don’t put dollar amount caps on origination fees, appraisal fees, etc. Nor does the FHA set or regulate these expenses—your experience may vary.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today: