Additional Costs Associated with an FHA Mortgage

You will be required to have some funds to buy an FHA-approved home, although the amount you will need is significantly less than what would be required for a conventional loan. You will need a down payment, typically three percent of the home’s value, in addition to an initial one-time mortgage insurance premium that is in addition to the monthly premiums you will pay.

A lender may also charge discount points, in addition to the FHA mortgage insurance fees. One point is one percent of the total mortgage amount; for example, a lender charging one discount point on a mortgage for $100,000 would be charging an additional fee of $1,000.

Depending on the lender or your geographic location, the points you are charged may vary. HUD does not decide the amount of points charged by the lender. The discount points cannot be financed along with the mortgage, unless it is a refinance and there is already enough equity in the home to cover this added amount. Similarly, real estate taxes and property insurance must also be paid separately.

Most other closing costs outside of the discount points can be financed along with the mortgage amount. Other closing costs may include service charges, origination fees, title search fees, and fees for preparing the mortgage document. The closing costs, including the discount points, may be paid by either the buyer or the seller, or shared between the two, depending on the contract and the agreement between the two parties.

An origination fee may be charged by the lender, and this amount may not exceed one percent of the mortgage amount. A commitment fee is money charged by the lender to lock in an interest rate and other terms.