How Much Is That FHA Loan Going to Cost You?
If you’ve been thinking about buying a home, or you’ve been increasing your mortgage education, you have probably heard the term ‘FHA loan.’
Federal Housing Administration (FHA) loans are government guaranteed loans made to homebuyers. They were designed to make home ownership more accessible. These loans are popular with consumers for a number of reasons. Among them:
- FHA loans require small down payments.
- You don’t need excellent credit to qualify for them.
Despite the benefits, FHA loans are not free. If you want a true mortgage education, it is important to understand the fees associated with FHA loans in order to make the smartest decision on your loan product and subsequent home purchase.
There are a number of costs associated with FHA loans. Here’s an overview:
Earnest money is a deposit on a property that accompanies a contract. This fee accounts for a part of your down payment and is deducted from your down payment when you close on the house. Most earnest money deposits are one percent of the contracted sales price. So a property priced at $100,000 would require an earnest money deposit of $1,000.
Talk to your real estate agent about the particulars regarding earnest money deposits in your area.
The down payment is the amount
you pay when you close on the house. The Federal Housing Administration minimum down payments are 3.5 percent of the contracted purchase price .
On a property priced at $100,000, your minimum down payment would be $3,500. If you deduct your earnest money deposit from that, your down payment due at closing becomes $2,500.
Closing costs on a $100,000 property would range from $2,000 to $6,000. Closing costs are in addition to your down payment.
Your lender and Federal Housing Administration underwriter require an appraisal. This is an independent opinion of the property's value, executed by a licensed professional. Appraisals are fashioned to ensure that the bank is not lending more money than the home is worth. Appraisal fees vary based on location, age of the property and property type and size, but the median price is $350. This fee is paid before closing, and is given directly to the appraisal company.
Prior to shopping for a house, it's crucial to get a mortgage education and understand the costs associated with such a large transaction. The more you know about your FHA loan before you reach the closing table, the easier it will be to close on time, on schedule and on the money. A home buying coach can help you understand the process and provide other home buying help. To find a counselor in your area, click here »