Understanding FHA closing costs

What's included in the closing costs of FHA loans?

Mortgages insured by the Federal Housing Administration (also called "FHA loans") help make homeownership affordable for people with moderate incomes.

Like most mortgages, FHA loans usually come with closing costs paid by the borrower. Many of these costs are similar to the closing costs for other types of mortgages, including lender and third-party fees. The upfront mortgage insurance premium is a closing cost unique to FHA loans, however.

Upfront Mortgage Insurance Premiums (UFMIP)

One of the closing costs required for an FHA loan is the UFMIP. This premium is equal to 1.75% of the base loan amount. For example, if you are borrowing $200,000 with an FHA loan to finance the purchase of a house, you will need to pay a mortgage insurance premium of $3,500 upfront.

Everyone who gets an FHA loan to buy a home needs to pay UFMIP. Only FHA loans have this requirement. VA loans have a similar closing cost called a funding fee. Conventional loans do not usually have any upfront mortgage insurance costs.

Other FHA loan closing costs

UFMIP is not the only closing cost that comes with an FHA loan. FHA mortgages can also have many of the same closing costs as other loans. These include:

• Discount points
  Discount points buy down the interest rate on the mortgage. One discount point is equal to 1% of the loan amount.
• Appraisal fees and title searches
  A home appraisal is an estimate of the value of the house performed by a professional who charges a fee for this service. A title search makes sure there are no liens against the property and confirms the seller is the legal owner of the property. Title searches are also done by a professional who charges a fee for the work. These fees can be included in your FHA closing costs.
• Application, origination, and attorney fees
  Getting an FHA loan can include application and origination fees charged by the lender, and potentially, fees for an attorney to review the mortgage documents.
• Homeowners insurance and property taxes
  You may be required to pay your property taxes and homeowners insurance premiums at closing.

How much are closing costs on an FHA loan? 

When you are buying a home with an FHA loan, the closing costs average between 3% and 4% of the sale price of the home according to the U.S. Department of Housing and Urban Development. That means you might pay between $7,500 and $10,000 in closing costs if you are buying a house that costs $250,000.

Can FHA closing costs be included in the loan?

Except for FHA streamline refinances, borrowers may be able to finance their closing costs into their loan amount. If you are borrowing $250,000 to buy a home and your closing costs are $7,500, you may be able to get a mortgage for $257,500. Keep in mind, however, that increasing the amount of your mortgage will increase the total amount of money you pay in interest over the life of the loan. Sellers can also pay some closing costs of FHA loans for buyers, if they choose.

FHA Streamline Refinance closing costs

You also are required to pay closing costs when you refinance an FHA loan with the streamline refinance program. An FHA Streamline Refinance features less paperwork and faster closings than other types of refinances. To qualify for streamline refinancing, you need to replace your current FHA mortgage with a new FHA mortgage.

When you refinance your FHA loan using the streamline process, you will pay a new UFMIP equal to 1.75% of the unpaid loan balance. If your current FHA loan is less than three years old, you may qualify for a partial refund of your previous UFMIP. You can finance the cost of the new UFMIP into your new loan amount.

You may have to pay title fees, recording fees, taxes, and other closing costs as part of a streamline refinance too. Unlike UFMIP, you cannot finance these closing costs into your new loan balance. You must pay them at closing.

*Freedom Mortgage is a top FHA lender in the United States according to Inside Mortgage Finance, Jan.–Jun., 2024.

Last reviewed and updated August 2024 by Freedom Mortgage.