What You Should Know About FHA Loan Origination Fees

August 6, 2010

When a house hunter wants to apply for an FHA home loan, there are many issues to consider. A first time homeowner might not be used to the process of negotiating a price, shopping around for a competitive interest rate, or sizing up a property, but these are all skills a potential homeowner will need in the process of buying that first house.

If you want to apply for a loan to buy a house with an FHA mortgage, one important fact you should know is that the FHA does not set interest rates, regulate closing costs or negotiate discount points on the mortgage. If you find a property you're serious about buying, you will need to do all the homework including comparison pricing (to tell you what you could be paying for similar properties elsewhere in the same zip code), shopping around with a variety of lenders to get the best interest rate, and negotiating the fees and points on the deal.

While the FHA does not control interest, points or terms, there are regulations about the origination fee for an approved FHA guaranteed loan. Origination fees cover the lender's costs for issuing the FHA home loan. Depending on when your FHA loan was approved, you may only be required to pay 1% of the loan amount-this applies to all loans originated up to December 31, 2009. Those fees are "capped".

FHA guaranteed home loans in 2010 and beyond are not capped or limited to that 1% origination fee. This does NOT apply to FHA Reverse Mortgages (also known as HECM loans) or 203(k) rehabilitation loans.

Unfortunately some websites advertising FHA home loans have not updated their FHA loan pages to include the "no cap" rule for loans originated after January 1, 2010. Some borrowers may mistakenly believe their origination fees will be 1% of the total loan---check with your lender to know exactly what your costs may be when it comes to loan origination fees under the new guidelines.