Can FHA Closing Costs Be Financed?
“I have read in several places on the web that it is possible to finance your closing costs into an FHA loan. However, many of these sources are at least a couple of years old. Is this possible?”
The FHA official site offers some helpful information about FHA single family home loans and their associated closing costs. At www.HUD.gov on the page titled "Let FHA Loans Help You" you’ll read the following:
“FHA might be just what you need. Your down payment can be as low as 3.5% of the purchase price, and most of your closing costs and fees can be included in the loan. Available on 1-4 unit properties.”
Some of your FHA loan closing costs may be financed, and some may--after being negotiated between buyer and seller--be paid by the seller within the boundaries of the FHA loan program’s rules. The borrower also has the option to pay some closing costs out of pocket.
In situations where the seller will pay some of the closing costs, another set of FHA loan rules comes into play. According to the FHA official site:
“The seller and/or third party may contribute up to six percent of the lesser of the property’s sales price or the appraised value toward the buyer’s closing costs, prepaid expenses, discount points and other financing concessions."
However, the FHA loan requirements for closing costs may vary depending on the nature of the loan whether it’s a new purchase FHA mortgage, a Streamline Refinance loan or an FHA Cash Out Refinancing loan.
FHA loan rules say there’s one thing a borrower cannot do with closing costs, regardless of how they are paid. Closing costs can never be included as part of your minimum FHA loan down payment. Closing costs do NOT count towards the minimum 3.5% down payment and are considered separate from the down payment. The rules for this are found in HUD 4155.1 Chapter Two Section A which clearly states:
“Closing costs (non-recurring closing costs, pre-paid expenses, and discount points) may not be used to help meet the borrower’s minimum required investment.”
If you want to finance closing costs into your FHA home loan, talk to your loan officer about your needs.
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