For each transaction, the lender must estimate the settlement
requirements to determine the cash required to close the
mortgage transaction. In addition to the minimum cash
investment described in paragraph 1-7, additional borrower
expenses, including those described in A-I below, must be
included in the total amount of cash the borrower must provide
at
mortgage settlement. The difference between the amount of
the FHA-insured mortgage, excluding any UFMIP, and the total
cost to acquire the property, including these expenses,
determines the cash needed for closing a loan eligible for FHA
mortgage insurance.
A. Closing Costs. These include those FHA-approved
non-recurring costs associated with the mortgage transaction,
including the appraisal fee, any inspection fees, the actual cost
of credit reports, the loan origination fee, settlement fee,
deposit verification fees, home inspection service fees up to
$300, the cost of title examination and title insurance,
document preparation fees (if performed by a third-party not
controlled by the lender), property survey fees, attorney's fees,
recording fees, transfer stamps, and taxes, as well as test and
certification fees, such as flood-zone determination fees, water
tests, and other costs as determined by the appropriate HOC.
B. Prepaid Items. Prepaid items are collected at closing to cover
accruedand unaccrued hazard insurance and mortgage
insurance premiums, taxesand per diem interest, and include
other similar fees and charges. The lender must use a minimum
of 15 days of per diem interest in its estimate of prepaid items.
To reduce the burden on borrowers whose loans were
scheduled to close at the end of the month but did not due to
unforeseen circumstances, lenders and borrowers may agree to
credit the per diem interest to the borrower and have the
mortgage payments begin the first of the succeeding month.
However, the dollar amount of the cash credit is not to be used
to reduce the minimum cash investment.
requirements to determine the cash required to close the
mortgage transaction. In addition to the minimum cash
investment described in paragraph 1-7, additional borrower
expenses, including those described in A-I below, must be
included in the total amount of cash the borrower must provide
at
mortgage settlement. The difference between the amount of
the FHA-insured mortgage, excluding any UFMIP, and the total
cost to acquire the property, including these expenses,
determines the cash needed for closing a loan eligible for FHA
mortgage insurance.
A. Closing Costs. These include those FHA-approved
non-recurring costs associated with the mortgage transaction,
including the appraisal fee, any inspection fees, the actual cost
of credit reports, the loan origination fee, settlement fee,
deposit verification fees, home inspection service fees up to
$300, the cost of title examination and title insurance,
document preparation fees (if performed by a third-party not
controlled by the lender), property survey fees, attorney's fees,
recording fees, transfer stamps, and taxes, as well as test and
certification fees, such as flood-zone determination fees, water
tests, and other costs as determined by the appropriate HOC.
B. Prepaid Items. Prepaid items are collected at closing to cover
accruedand unaccrued hazard insurance and mortgage
insurance premiums, taxesand per diem interest, and include
other similar fees and charges. The lender must use a minimum
of 15 days of per diem interest in its estimate of prepaid items.
To reduce the burden on borrowers whose loans were
scheduled to close at the end of the month but did not due to
unforeseen circumstances, lenders and borrowers may agree to
credit the per diem interest to the borrower and have the
mortgage payments begin the first of the succeeding month.
However, the dollar amount of the cash credit is not to be used
to reduce the minimum cash investment.
| FHA Loan Programs |
C. Discount Points. Discount points that are being paid by the borrower become part of the total cash
investment but are not eligible for meeting the minimum cash investment requirement.
D. Non-Realty (Chattel) or Personal Property. Non-realty or personal property items that the borrower
agrees to pay for separately, including the amount subtracted from the sales price in determining the
maximum mortgage, are included in the total cash requirements for the loan.
E. Closing Costs Not Eligible for Meeting the Cash Investment Requirement. Certain closing costs, such as
commitment fees for guaranteeing the rate or points, and fees such as any ineligible real estate broker fees
or any portion, or any such allowable fee not previously included in meeting the investment requirement are
included in calculating the total cash needed to close the mortgage.
F. UFMIPs. Any UFMIP amounts paid in cash are added to the total cash settlement requirements. The UFMIP
must be entirely financed into the mortgage (except for any amount less than $1) or paid entirely in cash
and all mortgage amounts must be rounded down to a multiple of $1.
G. Repairs and Improvements. Repairs and improvements (or any portion) to be paid by the borrower that
cannot be financed into the mortgage are part of the borrower’s total cash requirements.
H. Real Estate Broker Fees. If the borrower is represented by a real estate buyer-broker and must pay a fee
directly to the broker, that expense must be included in the total of the borrower's settlement requirements
and appear on the HUD-1 Settlement Statement. If the seller pays the buyer-broker fee as part of the sales
commission, this is not to be considered an inducement to purchase or part of the 6 percent seller
contributions limitation, provided that the seller is paying only the normal sales commission typical of that
market. The lender must obtain a copy of the original listing agreement and compare it with the HUD-1
Settlement Statement to determine if the seller paid a buyer-broker fee in addition to the normal sales
commission for that market. If the seller paid an additional commission for the buyer-broker fee, then this is
considered an inducement to purchase.
I. Mortgage Broker Fees. If the borrower must pay a fee directly to a mortgage broker, that expense must
be included in the total of the borrower's cash settlement requirements and appear on the HUD-1
Settlement Statement. (This requirement applies to instances in which the borrower independently engages
a mortgage broker to seek financing and pays the broker directly. The payment may not come from the
lendinginstitution.)
J. Premium Pricing on FHA Insured Mortgages. Lenders may pay the borrower's allowable closing costs
and/or prepaid items by "premium pricing”. Closing costs paid in this manner need not be included as part of
the 6 percent seller contribution limit. The funds derived from a premium priced mortgage:
2. Must be used to reduce the principal balance if the premium
pricing agreement establishes a specific dollar amount for closing
costs and prepaid expenses with any remaining funds, in excess of
actual costs, reverting to the borrower.
3. May not be used for payment of debts, collection accounts, escrow
shortages or missed mortgage payments, or judgments.
K. Yield Spread Premiums. Yield spread premiums (YSP) are not part of
the cash required to close but must be disclosed to borrowers on the Good
Faith Estimate (GFE) and HUD-1 Settlement Statement in accordance
with the Real Estate Settlement Procedures Act (RESPA) requirements.
investment but are not eligible for meeting the minimum cash investment requirement.
D. Non-Realty (Chattel) or Personal Property. Non-realty or personal property items that the borrower
agrees to pay for separately, including the amount subtracted from the sales price in determining the
maximum mortgage, are included in the total cash requirements for the loan.
E. Closing Costs Not Eligible for Meeting the Cash Investment Requirement. Certain closing costs, such as
commitment fees for guaranteeing the rate or points, and fees such as any ineligible real estate broker fees
or any portion, or any such allowable fee not previously included in meeting the investment requirement are
included in calculating the total cash needed to close the mortgage.
F. UFMIPs. Any UFMIP amounts paid in cash are added to the total cash settlement requirements. The UFMIP
must be entirely financed into the mortgage (except for any amount less than $1) or paid entirely in cash
and all mortgage amounts must be rounded down to a multiple of $1.
G. Repairs and Improvements. Repairs and improvements (or any portion) to be paid by the borrower that
cannot be financed into the mortgage are part of the borrower’s total cash requirements.
H. Real Estate Broker Fees. If the borrower is represented by a real estate buyer-broker and must pay a fee
directly to the broker, that expense must be included in the total of the borrower's settlement requirements
and appear on the HUD-1 Settlement Statement. If the seller pays the buyer-broker fee as part of the sales
commission, this is not to be considered an inducement to purchase or part of the 6 percent seller
contributions limitation, provided that the seller is paying only the normal sales commission typical of that
market. The lender must obtain a copy of the original listing agreement and compare it with the HUD-1
Settlement Statement to determine if the seller paid a buyer-broker fee in addition to the normal sales
commission for that market. If the seller paid an additional commission for the buyer-broker fee, then this is
considered an inducement to purchase.
I. Mortgage Broker Fees. If the borrower must pay a fee directly to a mortgage broker, that expense must
be included in the total of the borrower's cash settlement requirements and appear on the HUD-1
Settlement Statement. (This requirement applies to instances in which the borrower independently engages
a mortgage broker to seek financing and pays the broker directly. The payment may not come from the
lendinginstitution.)
J. Premium Pricing on FHA Insured Mortgages. Lenders may pay the borrower's allowable closing costs
and/or prepaid items by "premium pricing”. Closing costs paid in this manner need not be included as part of
the 6 percent seller contribution limit. The funds derived from a premium priced mortgage:
- May never be used to pay any portion of the borrower's downpayment.
- Must be disclosed on the Good-Faith Estimate (GFE) and the HUD-1 Settlement Statement. The GFE
and HUD-1 must include an itemized statement indicating which items are being paid on the
borrower's behalf; disclosing only a lump sum is not acceptable. Also, the amount paid on the
borrower's behalf for each item may not exceed the allowable fee permitted by the jurisdictional HOC.
2. Must be used to reduce the principal balance if the premium
pricing agreement establishes a specific dollar amount for closing
costs and prepaid expenses with any remaining funds, in excess of
actual costs, reverting to the borrower.
3. May not be used for payment of debts, collection accounts, escrow
shortages or missed mortgage payments, or judgments.
K. Yield Spread Premiums. Yield spread premiums (YSP) are not part of
the cash required to close but must be disclosed to borrowers on the Good
Faith Estimate (GFE) and HUD-1 Settlement Statement in accordance
with the Real Estate Settlement Procedures Act (RESPA) requirements.
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
