Question
If my husband and I went with an FHA home loan to buy a house, what is the most efficient way to find a lender who charges the lowest closing costs?
Answer
There is no easy way to find the one mortgage company who will give you the lowest closing costs. A better approach is to know the approximate costs of each item that you should expect to be charged. At a minimum you should get quotes from at least three different FHA mortgage lenders and compare their offers.
TIP - get a good faith estimate from each mortgage lender that you get a quote from. Please refer to Part 1 of our 3 part series on Closing Costs and Good Faith Estimates to get an idea of the approximate range of fees you can expect to see moving forward. To search for an FHA licensed mortgage company see next Answer.
Question
Do we need to work with a mortgage broker to get an FHA loan?
Answer
You do not need to work with a mortgage broker to get an FHA loan. In fact many mortgage brokers cannot work with you to get an FHA loan. There are extra requirements that a mortgage broker must meet to get a license to be able to offer FHA loan programs. If you do some shopping around for mortgage companies, make sure that you ask whether they are FHA licensed or not.
Be careful of any mortgage company who tries to tell you that FHA is not a good loan program. They might be telling you this because they are not able to offer FHA to you and want to get you into another type of loan. Here is FHA’s website that you can use to search for an FHA certified mortgage company to work with.
Licensed Mortgage Brokers Have More Lending Options
A mortgage broker who can do FHA is as good as anybody. My bias is work with a broker as they have the flexibility to look at a number of FHA loan providers for your loan. Your options are limited if you have a quirk in your loan by going direct to your local bank, Bank of America, Wells Fargo, or your credit union because they have to go through their specific guidelines and if their underwriter doesn't like something about your loan then you have to move to another lender and start the process all over. With a broker they can move to another provider without you having to do anything.
Question
I have seen that closing costs can vary quite a bit, or are closing costs on FHA insured loans more regulated?
Answer
For the most part, the closing costs associated with an FHA loan are the same as a non FHA mortgage. There are some restrictions about what can or cannot be charged to a borrower getting the FHA loan. One charge you cannot be charged on an FHA loan is a tax related service fee.
Expected Closing Costs Associated With An FHA Loan
- Credit report fee (no mortgage company markups allowed)
- Lender origination fee not to exceed 1%
- Lender loan discount fee (this fee is associated with getting a lower interest rate – if you are charged this make sure that you ask what would the rate be if you didn’t have to pay this fee)
- Property Appraisal fee and any home inspection fees like termite
- Title Search, Title Exam, Title Abstract, Title Insurance, Alta Policy Fees
- Third party document prep fees that are outside of the lender’s jurisdiction
- Property survey where applicable
- County recorder recording fees, transfer fees and real estate taxes
- Water tests, roof inspections, and septic system inspections
- Attorney’s fees associated with your loan settlement and Title Insurance
- Up front Mortgage Insurance Premium – MIP – typically 1.5% of the loan amount
- Escrows for Taxes and Insurance as required by the lender
- Pre-paid Interest that is due on your mortgage from the settlement date to the end of the month
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