FHA Loan Closing Costs: How Much, Who Pays & What to Expect

An FHA loan can allow you to purchase a home with lower credit and less money down than conventional alternatives. However, like with all mortgages, you are still responsible for covering the FHA closing costs.

These are largely similar to the fees charged with other types of loans, although there are some added expenses to be aware of.

This FHA loan closing costs guide is designed to help borrowers understand the costs they'll be responsible for, how much they should plan to have on top of their down payment, and some strategies for potentially lowering their final closing costs.

Key Takeaways

• There are costs associated with all mortgages, with FHA loan closing costs generally running between 3% and 6% of the total amount financed.
• The biggest difference between FHA closing costs and other loan types is the 1.75% upfront mortgage insurance premium.
• Other closing costs can vary by the size of your loan, where you’re purchasing, and the lender you choose.
• You can shop around for some, but not all, of your closing costs to lower your total expense.
• Some strategies, like asking for seller concessions and applying for closing cost assistance, may reduce your burden even further.

What Are FHA Closing Costs?

Closing costs are the expenses incurred during the homebuying and mortgage lending process. In most cases, FHA closing costs run between 3% and 6% of the total amount financed. This includes fees paid to the FHA, your lender, and other parties involved leading up to closing.

You will also be required to fund your escrow accounts, so while these aren't actually closing costs, we still cover them since they're generally paid alongside your other expenses.

It's important to point out that closing costs are separate from your down payment. Most FHA borrowers put 3.5% down. Closing costs need to be paid on top of this amount, bringing the total funds required to between 6.5% and 9.5% for most FHA loans.

4 Types of FHA Closing Costs

FHA closing costs can be broken down into four categories:

• Mortgage insurance premium (MIP)
• Lender charges
• Third-party expenses
• Prepaid fees

Except for the mortgage insurance premium, most of these expenses are similar to or the same costs as other types of loans.

Mortgage Insurance Premium (MIP)

Because of the FHA’s relaxed lending standards, program-backed loans tend to have a higher delinquency rate than other types of mortgages. To help ensure the stability of the FHA loan program, a one-time upfront mortgage insurance premium (UFMIP) is charged to borrowers at closing.

Since 2012, the FHA UFMIP has been equal to 1.75% of the amount borrowed. This fee represents the most considerable difference between FHA loan closing costs and those for conventional mortgages.

Just how much extra will the upfront mortgage insurance premium run you? Here’s a quick chart of UFMIP costs based on the total loan amount.

The FHA upfront mortgage insurance premium can be a significant expense, potentially even doubling the closing costs for some borrowers.

Note: The UFMIP is due at closing. Most borrowers roll it into their loan. This fee is separate from the annual mortgage insurance premium that is part of your monthly mortgage payments.

Lender Charges

Lender charges are costs incurred by your mortgage provider during the loan application and underwriting process. Some FHA lender charges you may expect to pay include:

• Origination fee
• Processing fee
• Underwriting fee
• Application fee
• Document prep fee
• Interest rate lock fee
• Rate lock extension fee
• Float-down fee
• Lender discount points
• Supplemental loan origin fee (with FHA 203(k) rehab loans)

Third-Party Expenses

While your lender does a lot of the heavy work in getting your loan approved, it wouldn't be possible without help from various other companies and professionals. Third-party expenses are the closing costs associated with these other providers:

• Title research and insurance
• Notary fee
• Recording fee
• Appraisal fee
• Courrier fee
• Attorney’s fee
• Credit report fee
• Flood determination/certification fee

Prepaid Fees

Prepaid fees are not technically closing costs. Instead, they’re payments made in advance and held in escrow for ongoing expenses such as:

• Homeowners insurance
• Property taxes
• Annual MIP premiums

Note: Some properties may have ongoing homeowners or condo association dues that require monthly, quarterly, or annual payments. These fees are not typically prepaid; the buyer remains responsible for keeping them current.

Calculating FHA Closing Costs

Not all buyers pay the same FHA loan closing costs. That's because expenses can vary based on your:

• Loan amount
• Local market prices
• Legal requirements in your area
• The lender you choose

For example, some states, such as Massachusetts and South Carolina, require hiring real estate attorneys to conduct the closing process. Other states may require them to draft certain documents or certify titles while many other states have no such requirement at all.

Then, some costs vary by market, such as appraisal fees. According to HomeAdvisor, appraisal costs typically range from $275 to $350 in Missouri. At the same time, homebuyers in Colorado could expect to pay between $350 and $650 for the same service.

Similarly, prepaid costs for homeowners insurance and property taxes can vary significantly from one community to the next or even based on the month you purchase your home. For some borrowers, funding these escrow accounts could require hundreds or even thousands more at closing than someone with a similar loan amount.

How Much Will I Pay in FHA Loan Closing Costs?

When you apply with an FHA lender, they are legally required to send you a loan estimate within three business days. This document details your proposed mortgage terms and effectively acts as an FHA closing cost calculator by summing up all of the estimated closing costs. It also points out which costs you may be able to shop around for more affordable prices through different providers.

Then, at least three days before you're scheduled to close, your lender has to provide you with an FHA closing disclosure. This form details your actual FHA loan closing costs. Make sure to comb this document for any errors and compare your final costs with the estimates initially provided.

7 Tips for Reducing FHA Closing Costs

Unsure how to tackle the closing cost burden? Here are some different options for reducing the amount you need to come up with for closing. In some cases, you may even be able to combine more than one of these tips to buy your home with zero out-of-pocket cash.

1. Seller Concessions

The FHA allows property sellers to offer buyers a portion of their purchase price back in the form of closing cost assistance. These funds – up to the max FHA seller concessions limit of 6% – can be applied to your actual closing costs but not your down payment. This means you can use them to cover often-costly expenses like origination fees, discount points, and title services.

Keep in mind that sellers are more likely to agree to FHA seller concessions during a buyers’ market or with properties that have spent time listed or are otherwise difficult to sell.

2. FHA Closing Cost Assistance

You can apply for FHA closing cost assistance to help cover some or all of your loan's closing costs. You'll often find these programs referred to as down payment assistance (DPA), but rest assured that in nearly all cases, the funds can also be applied to your closing costs.

FHA DPA programs are available through each state's housing finance agency, county and local governments, and non-profit organizations.

3. Wrap In Your UFMIP

Because of loan-to-value restrictions on FHA mortgages, you can't generally wrap in all of your closing costs when purchasing a home like you may be able to when refinancing an existing FHA loan. However, program guidelines allow lenders to include your UFMIP in your loan balance, even if it exceeds the 96.5% LTV maximum.

Remember, though, this adds to the amount you owe and increases your monthly payments. While you avoid the cash outlay at closing, you’ll likely end up repaying the funds – and the growing interest – for the life of your loan.

4. "No Closing Cost" Mortgages

Some FHA lenders may offer a "no closing cost" mortgage, which can help offset a considerable portion of the money you need to close. Be warned, however, that even though these loans are advertised as having no closing costs, they will still cost you.

With FHA purchase loans, a “no closing cost” mortgage generally means that your lender is willing to pay for your closing costs through lender credits – the opposite of discount points – in exchange for you accepting a higher interest rate on your loan.

5. Gift Funds

In addition to closing cost assistance programs, the FHA also allows you to receive gift funds from family members, close friends, and employers to satisfy your closing costs and other cash needs.

These funds cannot be loans – they must be actual gifts without expectation of repayment. They require some additional documentation, but there's no limit to the amount of gifted money you can use for your purchase.

6. Shop Around

As we mentioned earlier, there are usually several closing costs you can shop around for to potentially lower your costs. These are outlined on your loan estimate and often include title search and insurance expenses, attorney's fees, and survey fees.

7. Negotiate With Your Lender

Lender charges can vary from one mortgage provider to the next. Some may charge a 1% origination fee while others may be willing to waive the expense altogether. To best position yourself to negotiate closing costs with your lender, take the time to apply with at least three different companies.

Once you've obtained multiple loan estimates, you can use the best offer to force other lenders to compete for your business through lower interest rates or reduced or even eliminated fees.

In Conclusion

FHA loan closing costs can be a significant expense for homebuyers – especially those who didn't realize they'd need available funds apart from their down payment amount. Ultimately, these costs will likely range between 3% and 6% of your loan balance. However, actual costs differ between lenders and mortgage markets.

For a personalized estimate of closing costs on an FHA loan for your homebuying plans, check today’s mortgage rates and apply with an experienced FHA lender serving your community.

FHA Closing Costs FAQ

Do you still have questions about FHA loan closing costs? Here are answers to a few of the most common inquiries.

Are Closing Costs Higher With an FHA Loan?

Most borrowers pay higher closing costs with an FHA loan than a conventional one because of the FHA’s required upfront mortgage insurance premium. This 1.75% fee is due at closing and can drive up FHA loan closing costs compared to other alternatives.

Can FHA Closing Costs Be Rolled Into the Loan?

Because of loan-to-value limitations on FHA loans, you are unlikely to be able to wrap all your closing costs into your FHA loan. However, lender guidelines allow you to roll in your 1.75% UFMIP payment, and you may be able to negotiate lender-paid closing costs for the remainder of the balance.

Why Would a Buyer Want an FHA Loan?

The FHA loan program was designed to help make homeownership possible for borrowers who can't afford or qualify for other mortgage options. With a credit score of 580 and a higher level of debt than with loans backed by different lenders, you can be eligible for a 3.5%-down FHA loan.

Plus, FHA annual mortgage insurance costs are often lower for borrowers with moderate credit than similar coverage through private mortgage insurance providers.