How to Get Lower Closing Costs on an FHA Loan


Are you applying for an FHA loan? Do you know how much are closing costs and who pays them? 


In this article, we'll help you understand closing costs, and tell you how to get lower closing costs on an FHA loan.


What Are Closing Costs?

Let's start with the basics. 


Closing costs are expenses paid above the purchase price of the property. These expenses are paid when a house purchase is finalized (when the title to the property is conveyed to the buyer.). 


How Much Are Closing Costs? 

Closing costs are usually between 2 and 5%. Different lenders will have different closing costs, and the amount will mostly depend on your credit score. 


Who Pays Closing Costs? 

Usually, the buyer is the one who pays the closing costs, but they can also be paid by the seller. FHA allows them to pay up to 6%. 


Another option is that a friend or a relative give you the amount of closing costs as a gift.


5 Ways to Help You Get Lower Closing Costs on an FHA Loan

When calculating your fees, lenders will take several different factors into account. A major factor will definitely be your credit score. The lower the credit score is, the higher fees you'll be charged. This is because a borrower with a lower credit score represents a higher risk for a lender.


These are the 5 ways that will help you get lower closing costs on an FHA loan.


1. Improve Your Credit Score 

Since your credit score is a major factor in determining your fees, you should try increasing it. 


First, you should check your credit score. You can do this online, and it won't negatively affect your score. Then, pay down the balances on your credit cards. And if one of your family members or friends has a credit card account in good standing, you can ask them to add you as an authorized user of the account. 


2. Visit Multiple Lenders 

During a 30-day period, multiple lenders can pull your credit report without hurting your credit score. This is called 'rate shopping'.


3. Negotiate with Lenders 

Closing costs can be negotiated, so you should use this possibility. Visit multiple lenders and use their loan estimate to negotiate until they can’t lower your fees anymore.


4. Check for Random Fees 

Some lenders charge random fees, such as a fee for pulling a credit report, courier fees, fees for mailing documents, etc. to try to get the most out of a borrower. Check your loan estimate for these random fees, and simply tell your lender you won't pay them. Most likely they will forget about those fees to prevent you from going with another lender.


5. Contact Other Settlement and Title Companies 

Not all settlement and title companies will charge the same fees, so you should contact other companies, and find the one that has the best offer.