FHA requirements define which closing costs are allowable as charges to the borrower, the specific costs and amounts that are deemed reasonable and customary are determined by each local FHA office. All other costs are generally not allowed and are usually paid by the seller when buying a new home, or paid by the lender when refinancing your existing FHA loan.
Fee’s that are allowed by FHA include:
Lender’s origination fee
Deposit verification fees
The appraisal fee and any inspection fees
Cost of title insurance and tile examination
Document preparation (by a third party)
Credit reports (actual costs)
Transfer stamps, recording fees, and taxes
If you are refinancing an FHA loan, there are additional fees that may be included:
Wire transfer fees
Fees to pay off bills
FHA has tightened up their requirements to prevent home buyers from getting into a home they truly cannot afford. Borrowers and/or their spouse’s must now qualify according to a set debt to income ratios. The two ratios used to calculate whether or not the potential borrower is in a financial position that would allow them to meet the demands that are often included in owning a home are as follows:
1.) Mortgage Payment Expense to Effective Income
This simply stated is the total
mortgage payments divided by the borrower’s monthly income. The maximum ratio to qualify is 31%.
2.) Total Fixed Payment to Effective Income
This is the total monthly mortgage payment and all recurring monthly revolving and installment debt divided by the monthly gross income of the borrower. This maximum ratio to qualify is 43%.
FHA will also require their own home inspection (at the
buyers cost) and they will have specific requirements a home must pass in order
to qualify for an FHA loan. A few of
these items include, but are not limited to:
~Lead based paint
In general, any health or safety issues in a home purchased with an FHA loan, the inspector will order a repair ticket and the flagged item will need to be fixed prior to the closing of the home. Any items flagged by an FHA inspector, will also need to be re-inspected, at a cost before the loan will be granted and a closing allowed to happen.