FHA 203b Loan Closing Costs
While closing costs may not be the first thing you think of when you consider buying a home, it’s essential to make sure you take them into account before you make any big decisions regarding your home purchase. For most homes, including those purchased with 203b loans, closing costs will amount to around 2-5% of the home’s sale price. So, for a $400,000 home, this could easily range from $8,000 to $20,000— and that can be a lot if you’re not prepared.
Major closing costs for 203b loans
Some of the most common closing costs for 203b loans include:
Application fees: FHA loan application fees are usually quite small, but in most cases, a lender will charge about $50 to check a borrower’s credit score.
Appraisal costs: 203b loans require that a property gets a full appraisal, which typically costs between $300 and $500.
Upfront MIP: In addition to charging monthly MIP, the FHA requires that borrowers pay a one-time, upfront MIP fee. Currently, upfront MIP is 1.75 percent. Lenders will often lend this money to the borrower and roll it into the principal of their loan, but not always.
Mortgage points: Many FHA loan borrowers decide to purchase mortgage points, pay money upfront to reduce their interest rate. In most cases, 1 point will cost 1% of the entire loan amount, and will often reduce a borrower’s interest rate by between 0.125% and 0.25%. In most cases, a seller can purchase mortgage points for the buyer in order to induce them to buy the home.
Escrow/closing fee: Throughout the closing process, borrower funds are held in an escrow account, typically by a third-party escrow firm. Escrow costs are typically split by the buyer and seller, though this is negotiable. In most cases, escrow fees will consist of an approximate $200 fee, in addition to $2 per every $1,000 of the home’s sale amount.
Homeowner’s insurance: In certain cases, borrowers may be required to pay 1 year’s worth of homeowner’s insurance at closing.
Loan origination fee: FHA loan origination fees can vary by lender, but are typically about 0.5% of the total loan amount.
Title search fee: A title search helps protect the buyer in the case that there are any competing legal claims to a property, such as former owners, the spouses or ex-spouses of former owners, or even unpaid contractors that have done work on the property. Title searches typically cost around $75- $100.
Title insurance: Title insurance comes in two flavors; lender’s title insurance, which is intended to protect the lender if there is a competing claim to the property that could impact a borrower’s ability to repay their loan, and owner’s title insurance, which protects the owner if a competing claim arises. Most lenders require borrowers to pay lender’s title, and, while owner’s insurance is fully optional, it’s highly recommended.
Transfer taxes: Transfer taxes are typically required in order to transfer the title of a property from the seller to the buyer. While in most cases, the seller will pay the transfer taxes, in rare cases, such as when a buyer is purchasing a new home from a developer, the buyer will be responsible for paying.
Property taxes: Since a seller will likely have already paid their property taxes until the end of the current tax period, the buyer will typically have to reimburse the seller for the portion of the property taxes they have already paid.
Home inspection: Many borrowers may wish to pay for a home inspection in order to determine what, if any, repairs need to be made.