FHA home loan closing cost rules affect your home loan no matter if you are buying a mobile home with an FHA loan or having a house built on your own land using an FHA One-Time Close construction loan.
Closing cost rules for FHA home loans have two “lanes” (our term, not a bit of industry jargon) where the rules are applied–one is the rules from the FHA Single-Family Lender’s Handbook (HUD 4000.1) and the other are the lender’s own standards and requirements.
FHA loan rules and lender standards will both apply.
FHA loan closing cost rules begin with the understanding that your down payment and your closing costs are two separate expenses. Your closing costs cannot be used as part of your down payment.
FHA loan rules in HUD 4000.1 also state that your closing costs are calculated in a simple way, at least initially; “…the amount of cash needed by the Borrower to close an FHA-insured Mortgage is the difference between the total cost to acquire the Property and the total mortgage amount.”
But there are more complex issues. Your cash required to close may include appraisal fees, lender’s fees, title-related expenses, and more.
Your cash to close requirements for an FHA mortgage also include the Up-Front Mortgage Insurance Premium which may either be financed into the loan or paid at closing.
The catch? You can’t finance the fee in part. You can only pay it in full at closing time or have it financed in full.
The good news is that if you decide to pay the premium upfront and later change your mind, you can discuss with your lender the possibility of financing the Up Front Mortgage Insurance Premium (required for both new construction loans and existing construction loans) and getting a refund later
And while we’re on the cash to close subject, those who do not want to purchase but DO want to apply for an FHA refinance loan should know what HUD 4000.1 says:
“For a refinance transaction, the amount of cash needed by the Borrower to close an FHA-insured Mortgage is the difference between the total payoff requirements of the Mortgage being refinanced and the total mortgage amount. “
We’ve seen this wording before; the FHA rules here refer to calculating how much is being financed into the loan versus the costs that are paid upfront by the borrower at closing time, the same as with a new purchase loan. The difference for refinancing loans is that no down payment is required on a refi loan, so that financial aspect of the loan is not an issue for the borrower in terms of saving and budgeting.