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FHA Loan Costs: Questions Answered

February 12, 2024


Some borrowers don’t realize they are permitted to finance certain costs into an FHA home loan. This can help save money out of pocket in the earliest stages of the loan, making it easier to afford the basic initial costs of buying property.

Adding more to your home loan can make your monthly payments higher, but for some, that may sound like a good trade-off for saving money upfront on the transaction.

Some borrowers feel any addition to their baseline monthly payment needs justification and want to avoid adding to the loan wherever possible.

Choose any FHA loan add-ons carefully. Be sure to ask the lender about each addition to your mortgage. How will it increase your monthly payment?

Can I Finance FHA Required Mortgage Insurance?

Yes, but with caveats. You are allowed to finance the FHA up-front mortgage insurance premium. You must either finance the total amount or pay the total amount at closing time. You can’t finance a portion of the premium.

Can I Finance The FHA-Required Minimum Down Payment?

No. FHA loan rules require borrowers to make a minimum cash investment, whether that comes from their own funds or from approved down payment assistance sources.

The down payment must be paid in cash at closing time and delivered in the manner required in writing by the lender. Borrowers may apply for down payment assistance from third parties, including local agencies, friends, or family, but that downpayment assistance must meet FHA requirements as well as lender standards.

Can I Finance Energy-Efficient Upgrades?

Borrowers can use an FHA program called the FHA Energy Efficient Mortgage or FHA EEM, which allows more loan funds specifically for FHA and lender-approved improvements to the home such as new storm doors and windows, solar energy, and other options.

You can add this amount to the loan without affecting the FHA loan limit. FHA EEM money is applied once the initial FHA loan package is approved.

Can I Apply For More Home Loan Than I Need?

If you are hoping for cash back at closing time on an FHA purchase loan, you may be disappointed

Home loan funds for purchase loans typically do not make it to the borrower’s hands. Mortgage rules don’t allow borrowers to use a purchase loan like they would a personal loan. Cash to the borrower at closing time is limited to refunds. 

You’ll find this to be relevant for various home loans, including energy-efficient mortgages, FHA construction loans, and FHA renovation mortgages like the FHA 203(k) rehabilitation mortgage.

How does an FHA Lender Finance Home Loan Closing Costs?

You may be offered a higher interest rate in exchange for financing your FHA loan closing costs. Something known as “Premium pricing” is how lenders include more in your mortgage but do not forget to ask the lender to help you compare the costs of a loan with add-ons and without them.

Joe Wallace - Staff Writer

By Joe Wallace

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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FHANewsBlog.com was launched in 2010 by seasoned mortgage professionals wanting to educate homebuyers about the guidelines for FHA insured mortgage loans. Popular FHA topics include credit requirements, FHA loan limits, mortgage insurance premiums, closing costs and many more. The authors have written thousands of blogs specific to FHA mortgages and the site has substantially increased readership over the years and has become known for its “FHA News and Views”.

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