August 7, 2015
There are a variety of fees and expenses associated with FHA home loans; typical costs that the borrower should be saving up for during the planning stages of a new home loan. The FHA requires a minimum 3.5% down payment, for example, and that down payment is considered separate from the borrower’s closing costs.
And then there are expenses which are not considered part of the down payment OR closing costs. The FHA loan rules found in HUD 4155.2 at the time of this writing explain these costs. Discount points (a prepaid amount designed to lower the interest interest rate) are included in such expenses–not a down payment, not a closing cost.
Chapter Six of HUD 4155.2 describes discount points as follows:
“Discount points charged by the lender on a purchase transaction may be charged to the buyer, but may not be included in the financed mortgage amount.
Reasonable discount points for refinance transactions may be financed into the mortgage amount, subject to equity requirements and other restrictions applied to refinances.”
There’s also a fee for getting an interest rate lock or lock-in, which Chapter Six describes follows:
“These provide a written guarantee that ensures the loan terms
will not change for a definite period of time (for instance not less than 15 days), or
are limited to the extent to which the terms may change.”
Whether discussing closing costs, interest rate locks, or discount points, the rules in HUD 4155.2 include language meant to protect the borrower from excessive fees, markups, or inflated costs:
“The lender may only collect fair, reasonable, and customary fees and charges from the borrower for all origination services. FHA will monitor to ensure that borrowers are not overcharged. Furthermore, the FHA Commissioner retains the authority to set limits on the amount of any fees that a lender may charge a borrower(s) for obtaining an FHA loan.”
“Aggregate charges may not violate FHAs tiered pricing rules, per ML 94-16. Additionally, FHA does not allow mark-ups. The cost for any item charged to the borrower must not exceed the cost paid by the lender, or charged to the lender by the service provider. Only the actual cost for the service may be charged to the borrower.”
While it’s true that some borrowers may need time to save up for closing costs, discount points, etc., it’s also true that the FHA loan program has built-in protections to keep expenses fair and reasonable. Certain charges that apply in one area may not apply in another, and according to Chapter Six, “The appropriate Homeownership Center (HOC) may reject charges, based on what is reasonable and customary for the area.”
Do you have questions about FHA mortgage loans? Ask us in the comments section.
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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