What Closing Costs are allowable For the Buyer to Pay When Doing FHA Financing?

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What Closing Costs are allowable For the Buyer to Pay When Doing FHA Financing?

 
Listed below are the customary and reasonable fees and charges that may be collected from the borrower by the lender. The cost for any item charged to the borrower must not exceed the cost paid by the lender or charged to the lender by the service provider.

A.  Appraisal Fee and Inspection Fee. The borrower may be charged an appraisal fee. Borrowers may only be charged a pro rata appraisal fee on Master CRVs (MCRVs) or MARs since the fee charged by the appraiser is for all lots covered. This fee may not exceed the actual appraisal fee, divided by the number of lots covered by the appraisal. Inspection fees may be collected from the borrower for any inspections that must be conducted on the property.

B.  Credit Reports (Actual Costs). The lender can charge a fee for a credit report when the loan is manually underwritten, and it also may charge a fee for Automated Underwriting System (AUS) credit reports.
 
C.  AUS Fee. When the lender uses an AUS that is not the lender's own system or a system directly/indirectly owned by the lender, the lender may collect from the borrower the underwriting fee charged to the lender by the AUS. The lender can collect only one AUS underwriting fee from the borrower.
 
D.  Verification Charges. The borrower may be charged only the actual charges imposed by the depository institution, employer, or property management firm, etc.
 
E.  Origination Fee. The borrower may be charged an origination fee in accordance with 24 CFR 203.27. HUD is reviewing this regulation for possible amendment.
 
F.  Home Inspection Fees. Home inspection fees up to $300, or the actual cost, may be included as closing costs in meeting the borrower's minimum investment.

G. Document Preparation Fees. Document preparation fees may be charged only if the documents are prepared by a third-party and are not controlled by the lender. The lender may not charge these fees if it prepares documents itself.
 
H.  Property Survey Fees. The borrower may be charged property survey fees, although they are not required by FHA.
 
I.  Title Examination and Title Insurance Fees. The borrower may be charged title examination and title insurance fees, although they are not required by FHA.
 
J.  Attorney's Fees. The borrower may be charged attorney's fees, only if the attorney is not an employee of the lender.
 
K.  Settlement Fees. The borrower may be charged settlement fees, only if the closing agent is not an employee of the lender. A fee may be charged if the settlement agent is an independent company or a subsidiary that regularly closes loans for several different lenders.

L.  Real Estate Broker's Fees (Buyer Broker). The borrower may be charged real estate broker's fees, only if the borrower engages the broker independently and the fees are reasonable and customary. However, if the broker is not independently engaged, no fees may be charged to the borrower. See HUD Handbook 4155.1 for additional information.
 
M.  Recording Fees and Taxes. The borrower may be charged recording fees and taxes that are customary or required in the area.
 
N.  Test or Treatment Fees. The borrower may be charged test or treatment fees that are required by FHA or the lender. These fees include tests of water supplies, soil percolation tests for individual septic systems, or testing for or treating insect infestation.
 
O.  Courier/Wire/Notary Fees. Courier fees and wire fees may be charged only on refinances and only for delivery of the mortgage payoff statement to the lien holder and for closing documents to the settlement agent. The borrower must agree in writing to pay for the courier and wire fees, prior to loan closing. Notary fees may be charged if notarization is required by state law and is performed by a notary who is not employed by the lender.
 
P.  Other Fees and Charges. Other fees and charges that may be assessed, but are not considered "closing costs" include:

1.  Discount Points. Discount points charged by the lender on a purchase transaction may be charged to the buyer but may not be financed into the mortgage amount. On refinance transactions, reasonable discount points may be financed into the mortgage amount subject to equity requirements and other restrictions applied to refinances.
 
2.  Lock-Ins/Rate Locks. A written guarantee that ensures the loan terms will not change for a definite period of time (not less than 15 days) or that limits the extent to which the terms may change. See paragraph 1-9 of this handbook for additional information.
 
The appropriate HOC may authorize or reject any other charge or the amount of any charge, based on what is reasonable and customary in the area.

All of these closing costs are negotiable for the buyer to pay. However the seller is also allowed to pay them. The borrower must have 3.5% invested and that is the down payment amount.

4155.2 6.A.5.e Required Language for the Amendatory Clause

When an amendatory clause to the sales contract is required, as indicated in HUD 4155.2 6.A.5.d, the clause must contain the following language:

“It is expressly agreed that notwithstanding any other provisions of this contract, the purchaser shall not be obligated to complete the purchase of the property described herein or to incur any penalty by forfeiture of earnest money deposits or otherwise, unless the purchaser has been given, in accordance with HUD/FHA or VA requirements, a written statement by the Federal Housing Commissioner, Department of Veterans Affairs, or a Direct Endorsement lender setting forth the appraised value of the property of not less than $___________. The purchaser shall have the privilege and option of proceeding with consummation of the contract without regard to the amount of the appraised valuation. The appraised valuation is arrived at to determine the maximum mortgage the Department of Housing and Urban Development will insure. HUD does not warrant the value or condition of the property. The purchaser should satisfy himself/herself that the price and condition of the property are acceptable.”

The actual dollar amount to be inserted in the amendatory clause is the sales price stated in the contract. If the borrower and seller agree to adjust the sales price in response to an appraised value that is less than the sales price, a new amendatory clause is not required. However, the loan application package must include the original sales contract with the same price as shown in the amendatory clause, along with the revised or amended sales contract.

GENERAL ACCEPTABILITY STANDARDS FOR PROPERTY

There are minimum property standards for existing and proposed construction. A property is considered "existing construction" if it was completed more than one year prior to application. See HUD Handbooks 4905.1 and 4910.1 for additional information on existing and proposed construction, respectively.

Underwriters bear primary responsibility for determining eligibility of a property for FHA mortgage insurance. However, the FHA appraiser is the on-site representative for the Mortgagee and provides preliminary verification that these standards have been met. The "Notice to the Lender" requires the FHA appraiser to report the physical conditions that are readily observable on the date of the site visit and to detail the repairs needed to establish and/or maintain the marketability of the property, protect the health and safety of the occupants, and protect the security of the property. These criteria must be addressed by the Mortgagee before closing.

When examination of existing construction reveals noncompliance with the General Acceptability Criteria, an appropriate specific condition to correct the deficiency is required if correction is feasible. If correction is not feasible and only major repairs or alterations can effect compliance, the Mortgagee will reject the property.

The following is a general outline of the minimum property standards:

A.  Eligible Houses. Detached, semidetached, row houses, multiplex and individual condominium dwellings are eligible. If it is not detached, the dwelling must be separated from an adjoining dwelling by a party or lot line wall extending the full height of the building. Each living unit must be individually accessible for use and maintenance without trespass on adjoining properties.
 
B.  Site Conditions. The property must be free of health and safety hazards.
 
C.  Flood Hazard Areas. The Mortgagee is responsible for determining the eligibility of properties in flood hazard areas and relies upon the FHA appraiser's notation on the URAR form.

1.  Proposed and New Construction. If any portion of the property improvements (the dwelling and related structures/equipment essential to the value of the property and subject to flood damage) is located within a special flood hazard area (SFHA) designated by the Federal Emergency Management Agency (FEMA), the property is not eligible for FHA mortgage insurance unless: (1) a final Letter of Map Amendment (LOMA) or final Letter of Map Revision (LOMR) that removed the property from the SFHA location is obtained from FEMA or (2) if the property is not removed from the SFHA location by a LOMA or LOMR, the lender obtains a FEMA National Flood Insurance Program Elevation Certificate (form FEMA 81-31) ("flood elevation certificate") documenting that the lowest floor (including the basement) of the residential building and related improvements to the property is built at or above the 100 year flood elevation in compliance with the National Flood Insurance program criteria (see 44 CFR 60.3 through 60.6). National flood insurance is not required if a LOMA or LOMR is obtained but is required when a flood elevation certificate documents that the property remains located within the SFHA. The LOMA, LOMR, or flood elevation certificate must be submitted with the case for endorsement.

If the lender is uncertain about whether the property is located within a SFHA, it may require a flood elevation certificate. In addition, the lender has discretion to require national flood insurance even if the residential building and related improvements to the property are not located within the SFHA, but the lender has reason to believe that the building and related improvements to the property may be vulnerable to damage from flooding.
 
2.  Existing Construction. Flood insurance must be obtained and maintained for an existing property with any portion of the residential buildings located in a special flood hazard area.
 
3.  Insurance Amount Required. National flood insurance must be maintained in an amount equal to the least of the following: (1) the cost of the improved property (less estimated land costs); (2) the maximum limit of coverage made under the National Flood Insurance Act of 1968; or (3) the outstanding principal balance of the loan. Flood insurance is required for the term of the loan. If the buildings are located within a special flood hazard area (SFHA) and insurance under the National Flood Insurance Program is not available within a community, the property is not eligible for FHA mortgage insurance. See HUD Handbooks 4150.1 and 4150.2 for additional information.
 
E.  Lead-Based Paint Hazard. If the property was built before 1978, the seller must disclose known information on lead-based paint and lead-based paint hazards before selling the house. Sales contracts must include a disclosure form about lead-based paint. Buyers have up to 10 days to check for lead. HUD may insure a mortgage on a house even with lead-based paint if defective paint surfaces are treated. HUD will not pay the cost to have the lead-based paint removed, treated, or repaired.
 
F.   Services and Facilities. Utilities and other facilities should be independent for each unit and must include:

1.   A continuing supply of safe, potable water
 
2.   Sanitary facilities and a safe method of sewage disposal
 
3.   Heating adequate for health and comfort
 
4.   Domestic hot water, and
 
5.   Electricity for lighting and equipment
 
G. Access. There must be vehicular access to the property by means of an abutting all-weather public or private street. If private, there must be a permanent easement and provisions for permanent maintenance. Each property must have access to its rear yard.
 
H.  Nonresidential Use. Nonresidential use must be subordinate to the property's residential use and character, and it may not exceed 25% of the total floor area. The following are ineligible for mortgage insurance:

1.   Commercial enterprises
 
2.   Boarding houses
 
3.   Hotels/motels
 
4.   Tourist houses

5.   Private clubs
 
6.   Bed and Breakfast establishments

7.   Fraternity/sorority houses
 
 
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