FHA Closing Costs
FHA opens the door with 3.5 percent down, but the fees have their own structure.
FHA closing costs center on the 1.75 percent upfront mortgage insurance premium, which on a $289,500 loan is $5,066 and can be financed into the loan. A $300,000 purchase at 3.5 percent down estimates about $9,961 total: $2,895 origination, $5,066 upfront MIP, $350 appraisal, $1,500 title, $150 recording. Sellers may contribute up to 6 percent toward buyer costs, and FHA restricts which fees lenders can charge.
The upfront MIP
Every FHA loan carries a 1.75 percent upfront mortgage insurance premium on the loan amount. On $289,500 that is $5,066, the largest single closing line for most FHA buyers.
It can be financed into the loan balance, which preserves cash but means paying interest on it for the life of the loan. Annual MIP of 0.55 percent for most borrowers is separate and paid monthly.
Allowable fees and caps
FHA limits what lenders can charge: origination is generally capped at 1 percent, and certain junk fees are prohibited. Appraisal, title, and recording follow the usual third-party pattern.
Sellers can contribute up to 6 percent of the price toward the buyer's closing costs, prepaids, and points, one of the most generous concession caps in mortgage lending.
FHA vs conventional on costs
FHA usually costs more to close because of the upfront MIP, but it allows lower credit scores and 3.5 percent down, which conventional may not match for the same borrower.
Compare total cost, not just closing day: FHA's monthly MIP persists for the loan's life in most cases, while conventional PMI drops at 20 percent equity. The cheaper close is not always the cheaper loan.
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FHA closing costs questions
What is the FHA upfront mortgage insurance premium?
The FHA upfront MIP is 1.75 percent of the loan amount, charged at closing. On a $289,500 loan it is $5,066. It can be rolled into the loan balance instead of paid in cash.
How much can sellers contribute on FHA loans?
FHA allows seller concessions up to 6 percent of the price, covering closing costs, prepaids, and discount points. This is higher than conventional caps for most down payment levels.
Are FHA closing costs higher than conventional?
Yes, the 1.75 percent upfront MIP typically makes FHA closings more expensive than conventional at the same price. FHA's advantage is access: lower down payment and more forgiving credit requirements.