Are you looking for a home and wondering how much money you need for an FHA loan? If you’re short on cash, an FHA Loan is an excellent option. You can get in a house with a low down payment.

But there’s more to pay for than the down payment.

You’ll run into Closing Costs and other fees along the way. Here’s how much money you’ll need to cover FHA loan costs.

What Are FHA Closing Costs?

FHA closing costs are the expenses you’re required to pay when you take out an FHA loan. The amount depends on how much you borrow and other factors.

So, how much are closing costs?

Typically, you’ll pay between 2% and 6% of the total loan amount in closing fees. That comes out to about $7,400 in closing costs for the average borrower, according to the Consumer Financial Protection Bureau (CFPB).

That can include mortgage insurance premiums, lender fees, and other costs.

Mortgage Insurance Premium

FHA loans don’t require private mortgage insurance (PMI), but they do need a Mortgage Insurance Premium (MIP).

Your closing costs will include an upfront premium of about 1.75% of the loan amount.

But that isn’t all…

You’ll also pay a monthly premium that’s automatically added to your mortgage payments. It varies, but you’ll usually pay around 0.45% to 1.05% of the total loan amount each year.

Lender Fees

Lenders can charge various fees when you borrow for an FHA loan.

It’s one reason shopping around for a mortgage is so important — one lender could have higher costs than another, meaning you’ll pay more out of pocket.

Some lender fees you’ll see are:

• Application fee
• Origination
• Underwriting
• Document preparation
• Interest rate lock

You might be able to negotiate the fees or get the lender to waive them altogether. It just depends on your lender.

Third-Party Fees

Besides the FHA required fees and lender fees, you’ll also pay other providers that are involved in the transaction. Costs you could pay include:

• Title search
• Appraisal
• Credit check
• Notary
• Deed recording
• Real estate attorney
• Flood-zone certification

You can shop around to compare prices and save money for some of these services. But others might be fixed — check with the lender to ask about your options.

Prepaid Items

You’ll need to prepay for several items when buying a house with an FHA loan. Your prepaid costs include tax and insurance escrow deposit, flood and hazard insurance premiums, real estate taxes, and per diem interest.

But you might not have to foot the bill by yourself.

You can share prepaid items with the seller. Negotiate the costs to see which the seller might be willing to pay for — it can cut down on your fees.

How to Reduce Your FHA Closing Costs

FHA closing costs can be a burden for some home buyers, but there are ways to lower how much you pay. Here are a few tips on how to reduce FHA closing costs:

Compare Lender Fees

Closing costs can be a significant factor in the total cost of your new home. That’s why it’s so important to compare lenders and their fees before you sign on the dotted line.

One way to find out what your lender is charging you for is to review a copy of the Loan Estimate.

It’s easy to get.

Lenders must give you a Loan Estimate within three business days of receiving your application.

It includes the estimated interest rate, monthly payment amount and total closing costs you’ll pay for the loan.

Ask the Seller to Chip In

FHA loans allow you to ask the seller to pay some closing costs. It’s a simple way to cut down on your expenses. 

Remember that this might be a challenging demand in today’s housing market.

But if they really want to sell and don’t have better offers on the line, they might go for it.

Use Gifts of Cash

Your family and friends — even your employer, labor union or charity organization — can help foot the bill for your closing costs.

Is there a limit on how much you can get?

No, not really. There’s just one exception:

The IRS has an annual gift tax exclusion of $16,000 for 2022.

If others will help you pay, your lender will need a gift letter that includes a disclaimer stating that you won’t need to pay the money back. 

Add Closing Costs to Your Loan Balance

Finally, you can roll your closing costs into your FHA loan. This way, you reduce your upfront costs — a great solution if you’re short on cash when closing time rolls around.

But there’s a catch.

When you finance your closing costs, you increase your total loan balance. That means your monthly payment will be higher.

Plus, you’ll pay interest on the balance. So not only will you pay more each month, you’ll pay more in interest fees over the life of the loan, too.

Get an FHA Loan Quote

There’s no way to get out of paying your closing costs. But don’t let that discourage you from getting an FHA loan.

You have other options if you don’t have the cash to pay them out of pocket at closing.

The seller can foot the bill for some of them, your family or friends could gift you some cash, or you might roll them into your loan balance.

Use our mortgage calculator to discover how much cash you’ll need.

You can also get a quote, and we’ll match you with your perfect home loan.