FHA Loan Closing Costs
Every mortgage loan comes with closing costs. These compensate your lender, agent, title company, appraiser, and various other parties that play a role in your home purchase, and you pay for them at the closing table — along with your down payment.
Just how much can you expect to pay, though? That depends on a lot of factors. Keep reading to learn about what closing costs you can expect on an FHA mortgage loan and how much each fee costs.
- FHA loan closing costs typically range from 2% to 6% of your total loan amount, meaning on a $300,000 loan, you could pay between $6,000 and $18,000.
- FHA loan closing costs are similar to those of conventional loans. What makes FHA closing costs unique is that they require a Mortgage Insurance Premium (MIP), which includes an upfront fee of 1.75% of the loan amount and an annual fee added to monthly payments.
- Your lender, loan amount, property location, and the third parties you choose to work with can all help lower your closing costs.
Breakdown of FHA Loan Closing Costs
FHA closing costs aren’t set in stone. Instead, they’re comprised of dozens of smaller fees that can vary widely depending on the service providers you choose, your location, and your loan amount.
The FHA Mortgage Insurance Premium (MIP)
Both conventional loans and FHA loans require mortgage insurance, which protects the lender in case you default on your loan. With FHA loans, it’s called MIP — or mortgage insurance premium.
When you take out an FHA loan, you'll pay an upfront MIP (UFMIP) at closing, typically 1.75% of the loan amount. You can either pay the full UFMIP amount at closing or roll it into your loan amount. Additionally, there's an annual MIP that gets divided into monthly payments, ranging from 0.45% to 1.05% of the loan balance depending on factors like loan size, term, and down payment.
With most FHA loans, MIP is a permanent fixture. The only exception is if you make a down payment of 10% or more. In that case, you can cancel MIP after 11 years.
Lender Fees
These fees compensate your lender for all they do in the loan process. They include application fees, processing fees, and underwriting fees, to name a few. Keep in mind that these fees can be highly variable. To get an accurate picture of what you might be charged, ask your lender for a loan estimate, which details all the estimated fees for your specific loan.
Here’s a look at some common lender-side fees on FHA loans:
| Fee | What It Goes Toward | Estimated cost |
|---|---|---|
| Application fee | This covers the administrative costs of processing your loan application. | Up to $500 |
| Processing or underwriting fee | This goes toward the costs of evaluating your application and verifying your financial information. | $500 to $1,000 |
| Origination fee | This is your lender’s fee for originating and issuing the loan. | Up to 1% of your loan amount |
| Credit report fee | This is the cost of pulling your credit report. | Up to $100 per application |
| Discount points | If you choose to buy “points” to reduce your interest rate, you pay this at closing. | 1% of your loan amount per point |
| Rate lock fee | This locks in your interest rate for a certain period. | Up to 0.50% of your loan amount |
| Prepaid interest | This covers the interest costs between your closing date and the date your first mortgage payment is due. | Varies |
| Courier fee | You'll pay this fee if your loan documents require a courier to transport them. | $25 to $150 |
Lender Fees
These fees compensate your lender for all they do in the loan process. They include application fees, processing fees, and underwriting fees, to name a few. Keep in mind that these fees can be highly variable. To get an accurate picture of what you might be charged, ask your lender for a loan estimate, which details all the estimated fees for your specific loan.
Here’s a look at some common lender-side fees on FHA loans:
| Fee | What It Goes Toward | Estimated cost |
|---|---|---|
| Title fees | This covers the costs of running a title search on the property you’re buying. | $500 to $1,000 |
| Title insurance | This protects you if title disputes arise for your property down the line. | About 0.40% of the loan amount |
| Notary fee | This compensates the public notary who signs your documents. | $500 to $1,000 |
| Recording fee | This is the cost of recording the transaction with your county. | About $300 |
| Flood certification fee | This covers the cost of determining the flood risk of your property. | $15 to $50 |
| Agent commissions | If you’re using a real estate agent, your agent’s commissions will be paid at closing. | Typically, 3% of the loan amount per agent involved |
| Attorney fees | Some states require an attorney to be involved in the closing process. This fee compensates them for these services. | Varies |
You may be able to reduce these costs by shopping around for service providers. To see what services you can shop around for, look at page 2 of your loan estimate form.
Property Related Expenses
You also pay several property-specific closing costs. These cover things like taxes, insurance, HOA dues, and more.
Here’s a look at some typical property-related closing costs for FHA loans:
| Fee | What It Goes Toward | Estimated cost |
|---|---|---|
| Home insurance premium | This covers the costs of insuring your home against damage. | Varies by coverage amount and insurer |
| Property taxes | This goes toward local taxes on your property. | Varies by location |
| HOA dues | If you’re buying a home in a community with a Homeowner’s Association, you’ll pay this. | $500 to $1,000 per year |
| Home warranty | You can pay this optional cost to cover common home repairs and defects. | $500 to $800 |
| Survey fee | This is the cost of a professional surveyor assessing your property boundaries. | $500 to $1,000 |
How to Pay for FHA Loan Closing Costs
Closing costs can be expensive, but not all have to come out of your own pocket.
You can explore:
- Seller credits and concessions: On FHA loans, sellers can contribute up to 6% of the total purchase price toward closing costs. A seller might be willing to do this if they’re particularly eager to sell the house or if the home is located in a buyer’s market, where the number of homes for sale far surpasses the number of buyers. Talk to your agent if you’re considering this strategy, and they can negotiate on your behalf.
- Lender credits: You can ask your lender to cover some of your closing costs. These are called lender credits and typically mean taking a higher interest rate on your loan.
- Gift funds: FHA loans allow for gift funds, so if you have a family member willing to contribute toward your home purchase, that’s one option to consider. Just make sure it’s not a loan and does not need to be repaid (otherwise, the lender won’t allow it).
- Down payment and closing cost assistance: Many cities, states, and non-profit organizations offer assistance programs to help cover some or even all of your down payment or closing costs. These can come as low-cost loans (some of which are forgivable) or, more commonly, as grants, which don’t need to be repaid at any point.
Talk to a loan officer for more guidance on reducing your closing costs. They can make recommendations based on your specific situation.
FAQs About FHA Loan Closing Costs
Have a question we haven’t already answered? Ask a Neighbors Bank FHA loan specialist today. We’re happy to answer any questions you have along the way.
Who pays the closing costs of an FHA loan?
Borrowers are responsible for paying closing costs on an FHA loan, but there are other strategies for covering them. You may be able to get seller or lender credits, utilize a down payment or closing cost assistance program, or leverage gift funds from a loved one. Financing your closing costs is also an option.
Can a seller pay closing costs on an FHA loan?
Yes, sellers can cover a portion of a buyer’s closing costs — up to 6% of the purchase price (this prevents the price from being artificially inflated). However, this needs to be negotiated, and a seller’s willingness to contribute can vary widely depending on market conditions. Talk to your agent if you’re considering this strategy.
Are closing costs high with FHA loans?
FHA closing costs are comparable to conventional loans’ closing costs and other mortgage types. The biggest difference is that FHA requires an upfront mortgage insurance premium, which is 1.75% of the loan amount.
Both FHA and conventional loans can be good mortgage options, but they’re not right for every borrower. For example, if your credit isn’t great, you might want an FHA loan due to its more lenient requirements. If you’re eyeing a fixer-upper property, a conventional loan is likely the better fit.
Are you eligible for a FHA home loan?
Talk to one of our loan experts to see if you qualify.
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