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Valued Contributor
rckstrscott
Posts: 2,659
Registered: ‎04-25-2011

FHA closing costs experiences and expectations

I know it is hard to get a real good handle on closing costs and everything prior to making and offer and discussing money in general.. But I am looking for some hypothetical and personal experiences to help ease my mind.. I did some searching and read some good threads, but obviously things change and some of those posts were from 2009...

 

I have been working with a loan officer, and I am a couple weeks away from having my credit run and starting the whole process. Right now my middle score is 670, I do have a couple bad marks but they are all paid, nothing negative over the last 2 years. So It looks like FHA is going to be the route we are choosing.

 

We are looking for 180k range in Illinois. Taxes are kind of a pain in the Chicago area so we have been estimating 5k yearly.

 

Out of pocket cost to get into the house have been estimated around 14k, that includes downpayment, all the insurance and out of pocket fees ect ect., without the seller covering part or all of closing costs..

 

I guess my question is, how much can I negotiate or work with the seller to cover? What types of experiences have you had?

 

14k would be doable, but it would basically depleat most of my money. Is expecting it to be less than that a pipe dream?

 

-scott

 

 

 

 

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StartingOver10
Posts: 3,814
Registered: ‎03-06-2010

Re: FHA closing costs experiences and expectations

[ Edited ]

I am a Realtor in S Fl that sells to many first time homebuyers using FHA financing.

The maximum amount allowed by FHA guidelines is a 6% of the purchase price seller contribution toward your closing costs and pre-paid expenses (cc's & pp's).

Here in our area most of the sellers will contribute, but not all.

 

 It is very, very local (differs from neighborhood to neighborhood) as to the amount that is common in your area. If you are buying a short sale or bank owned property, the short sale lenders/sellers limit the seller contribution to 3% of the purchase price toward your cc's and pp's even though FHA will allow 6%. In your price range most sellers will contribute (here anyway) $5k if they are individual sellers. If they are institutional type sellers like you have in a short sale or REO property, than 3% is the norm. All of these amounts are market driven. I don't know your specific market, so the best resource for your specific location is to ask your agent. She will be able to find out what has sold and how much the seller's contribution was on each deal for the neighborhood in which you make your offer.

 

 

Valued Contributor
rckstrscott
Posts: 2,659
Registered: ‎04-25-2011

Re: FHA closing costs experiences and expectations

Thanks StartingOver.

 

When speaking of closing costs, does that include everything with the exception of the downpayment  or only certain parts of closing are included?

 

Example, if I convince a seller to pay 6% of closing on FHA (lets just say for hypotetical its not a short sale or foreclosure), is the expectation of only having to come up with, oh, 7 or 8k in cash at the table plausible?

 

-scott

 

 

Starting FICO Score: 10/10: TU 498 | EQ: 502 Current FICO Score(lender pull): 05/12: TU: 722 | EQ: 712 | EX: 686
Collections Removed: Hunter Warfield, CBE Group, Merchants Credit Guide, EOS-CCA, Enhanced Recovery, Portfolio Recovery, UCB, American Collection Company, Medical Business Bureau, Jefferson Capital, Credit Portfolio Associates, FCO, LVNV, Convergent, Armor Systems
Other Negative Entries Removed:Plains Commerce CO, HSBC CO, 2008 Judgment Santander Reposession

Still Working On: Illinois Paid Tax Lien,
Positive Accounts:10/10: 0 | 07/12: 6 | Mortgage Closed 5/12, Macy's AMEX $3900, Citi/Home Depot $2000, Capital One Cash Rewards $1500, Capital One Secured $500, Credit One Bank $500. Total Utilization: 6%. AAoA: 1yr, 7mth. INQS: 8 TU, 8 EQ, 4 EX
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Senior Contributor
StartingOver10
Posts: 3,814
Registered: ‎03-06-2010

Re: FHA closing costs experiences and expectations

[ Edited ]

There is a very specific delineation between the definition of actual closing costs and other expenses due at closing.

 

As a buyer, you have to pay the down payment out of your own funds (your funds or gift funds).

The costs that are due at closing can be grouped into several categories, but in general there are two types: closing costs and pre-paid expenses.

So if you were able to have the seller contribute 6%, for example, that 6% ought to more than cover each and every expense except your down payment and the tax service fee. Here the tax service fee is $83.  It is a nominal fee, but it must be paid by the buyer and not the seller.

 

In fact, depending upon your lender, in this market 4% usually covers all of your closing costs and pre-paid expenses. The components in your closing costs are lender fees, government fees, and title and misc fees. The pre-paid expenses include pre-paid interest; insurance and escrows.

 

Your lender should give you a Good Faith Estimate (GFE) of what your costs will be on a hypothetical purchase of your maximum amount that you qualify for and that you are comfortable with spending. Some won't call it a GFE until you have the actual contracted property. But they will give you another document, with the same figures :smileyhappy:, and call it a Closing Costs Worksheet or some other name. Make sure to get that in writing before you start to look for properties so you have an excellent idea of what you are spending. If $180k is your max, get one also for $150k because you then have a bracketed amount and can see how much you will need to spend to get the loan for properties in your range. Have fun shopping!

Member
kjc143
Posts: 13
Registered: ‎01-30-2012

Re: FHA closing costs experiences and expectations

[ Edited ]

I am in the process of getting an FHA loan financed.  I received my final closing costs yesterday.  You will HAVE to pay the 3.5% down AND your 1 yrs insurance premium per FHA requirements.  Other than that, the sellers are able to cover closing costs  (I think up to 6% - don't take my word for it).

 

Don't feel like you're going crazy.  Last week, I was searching the whole internet for ways to figure out closing costs because I was freaked out that I wouldn't have enough for closing on 2-10 based on the GFE.  Find out what the lender's fees are along with how they're going to calculate the amount to go into your escrow account.  Then you can ask your realtor to get a quote on the title insurance and work.  (This is what I did, and maybe a little more than most people do but I had seriously freaked myself out).  I then sat down and came up with a total for what I'd need to bring to closing (leaving a little space for error).  The actual costs fell right in that range. 

 

Also note that the GFE does not account for the downpayment; that's completely separate. Edit...my GFE was off by over $3k (in a good way)

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Senior Contributor
StartingOver10
Posts: 3,814
Registered: ‎03-06-2010

Re: FHA closing costs experiences and expectations


kjc143 wrote:

I am in the process of getting an FHA loan financed.  I received my final closing costs yesterday.  You will HAVE to pay the 3.5% down AND your 1 yrs insurance premium per FHA requirements.  Other than that, the sellers are able to cover closing costs  (I think up to 6% - don't take my word for it).

 

Don't feel like you're going crazy.  Last week, I was searching the whole internet for ways to figure out closing costs because I was freaked out that I wouldn't have enough for closing on 2-10 based on the GFE.  Find out what the lender's fees are along with how they're going to calculate the amount to go into your escrow account.  Then you can ask your realtor to get a quote on the title insurance and work.  (This is what I did, and maybe a little more than most people do but I had seriously freaked myself out).  I then sat down and came up with a total for what I'd need to bring to closing (leaving a little space for error).  The actual costs fell right in that range. 

 

Also note that the GFE does not account for the downpayment; that's completely separate. Edit...my GFE was off by over $3k (in a good way)


Actually, the buyer has to come up with the 3.5% down payment only. If you negotiate for the right amount of pre-paid expenses, the seller can pay the first years insurance premium. When I am working with a buyer, I have the first years premium (plus the 2 mths extra required for escrows) on the HUD and it is paid out of the seller's contribution.

 

Also, the GFE does account for the down payment. A true GFE shows all the expenses and costs. Its a modified closing statement. I don't know what you are looking at, but your GFE shows each expense. Take a look at the sticky in the mortgage section above and it has an explanation of the new GFE's.

 


 

Member
kjc143
Posts: 13
Registered: ‎01-30-2012

Re: FHA closing costs experiences and expectations

Lender told me today that the reason I couldn't get the full credit for the seller's closing costs was because I had to cover the 3.5% AND the insurance premium out of pocket (which adds up) per FHA guidelines.  Maybe it's something new?  Maybe it's something he needs to check with his lender on.


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