Financing in McHenry>Question Details

Katie F, Real Estate Pro in Lake in the Hills, IL

Mortgage closing costs total explanation with FHA funding??

Asked by Katie F, Lake in the Hills, IL Tue Oct 25, 2011

I have a question I hope someone can answer thoroughly:

I put an offer in on a home for sale - hoping to get it for 155K, taxes are around $6100 a year.

Due to having a condo I rented out, I only qualify for an FHA loan. My mortgage broker total me that I would need around $11500 total at closing, which, if all goes a planned, will be Dec 2nd. This would include our down payment of around 5300, plus the upfront mortgage insurance fee, plus escrow. Does this seem high? I thought closing costs should include obviously the title, the interest through the end of Dec., and since we aren't getting a closing credit for back taxes, a few months of taxes. Can someone explain EXACTLY what I'm paying for and why with an FHA loan, based on the amount of the home and taxes? Our mortgage insurance he said would be around $165 a month. Thanks in advance.........we picked this guy because of a referral, but trying to make sure he's accurate with the totals....

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Richard Littlefield’s answer
The mortgage is actually made by private investors and is insured by FHA. The money is the cost of insuring that.
It is expensive, but you get a much lower rate because the investors are insured. You also get better terms, such as a lower down payment.
0 votes Thank Flag Link Thu Oct 27, 2011
Good morning Gobears999,

The FHA program charges 2 insurance premiums. One is an Up Front Premium which currently equals 1% of the loan amount (thus if you are borrowing $100,000, the UpFront Mortgage Insurance Premium or UFMIP is $1,000). This UFMIP is disclosed to you on your Good Faith Estimate as a closing cost and it affects the APR you will find on the Truth In Lending by making that APR substantially higher than a similar Conventional loan with Private Mortgage Insurance (PMI).

While the UFMIP is a closing cost, it is always financed into the loan. In the example cited above for a $100,000 loan with $1,000 UFMIP, therefore, the total loan at closing would be $101,000. So while the UFMIP is a closing cost, you do not pay it in cash at closing.

The second FHA Insurance premium is MMIP or Monthly Mortgage Insurance Premium. If your down payment is less than 5% the MMIP is calculated as 1.15% of the base loan amount divided by 12 months. From our example above, therefore, $100,000 X 1.15%/12= $95.83 monthly. The MMIP is incorporated into your monthly payment for your mortgage, in other words, the check you'll write to pay your mortgage every month.

You must pay the MMIP until you meet 2 conditions:
1. On time payments for a minimum of 5 years
2. The principal balance of your loan equals 78% of the original purchase price of the house when you closed. Therefore you must have paid in a total of 22% of principal (including your original 3.5% Down Payment at closing).

Trevor Curran
NMLS #40140
Web Reference:
0 votes Thank Flag Link Wed Oct 26, 2011
Just to clear up some of the earlier answers. The up front mortgage insurance is 1% not 2% of the loan amount. This is usually financed and not paid out of pocket thus it is not a part of the cash needed to close. Without reviewing your closing cost estimate it is hard to provide any details on your closing cost. A rule of thumb is 3.5% to 4% times the sales price should equal your closing cost, depending on points being paid. Sounds like it is time to sit down and have a face to face with your LO and have the numbers explained line by line. Good Luck!
0 votes Thank Flag Link Tue Oct 25, 2011
Home Buyer,

Just wanted to add a couple of other items.

While I work in Orange County, California and can't speak specifically to your area, FHA loans require an initial mortgage insurance premium of just under 2% (points) and then the monthly premium. So this initial payment will be a large chunk of the costs.

Also, in Califronia, prorated property taxes must be prepaid in escrow. This amount varies with the date of closing but can often be a significant portion of the annual total. Do you know how this is calculated in your area?

As mentioned in prior by Suzanne, all costs must be clearly disclosed and explained to buyers. If you don't get the answers you need, escalate!

Good Luck!
0 votes Thank Flag Link Tue Oct 25, 2011
December is the best month to close, as far as pre-paid taxes goes; you only pay 1 month.

And, yes, why don't you have a HUD1? This would explain everything.

And, WOW! you are paying 3.9% property taxes!

And, $5300 is about right for Closing Costs, but that should INCLUDE the upfront Insurance and Escrow Fee.

And, the Title Company provides the HUD1, but the Lender provides the GFE: Compare the two and sit down with the Title Company and your Realtor and go over the figures. It sounds to me that someone may be socking it to you in up-front fees. (I'm not talking ACCURACY, I'm talking socking it to you!

Good luck and may God bless
0 votes Thank Flag Link Tue Oct 25, 2011
The mortgage lender has to give you a good faith estimate. These costs will likely be slightly overestimated, because they will be financially responsible if they underestimate. The only thing they can be 100% accurate on is their lender fees. I would go through the estimate line by line with them. You will need to pay for things like title insurance, lender fees, recording fees, stamps. Some lenders do charge extra fees for fha loans.
0 votes Thank Flag Link Tue Oct 25, 2011
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