Is Down Payment Included in Closing Costs for FHA Loans?
It costs money to buy a house with an FHA loan. You have to pay a down payment and closing costs. The down payment is not part of your closing costs because they are two different costs.
What is a Down Payment on an FHA Loan?
The down payment is the portion of the purchase price you pay upfront when you buy a home. With an FHA loan the minimum down payment is 3.5% of the purchase price.
In the case of an FHA loan, the least amount you can put down on a $200,000 home is
$200,000 x 0.035 = $7,000
To close on this house, you’d need at least $7,000. The remaining $193,000 would be financed with your FHA mortgage.
A larger down payment of 10% or 20% will get you a better interest rate and lower your monthly payments. But the minimum is 3.5% for an FHA loan.
What are Closing Costs on an FHA Loan?
Closing costs are fees charged by lenders and third parties to process, underwrite and close your FHA mortgage. They cover services like:
- Origination fees
- Appraisal fees
- Credit report fees
- Title fees
- Recording fees
- Home inspection fees
- Tax service fees
Closing costs typically total 2-5% of the purchase price. On a $200,000 home, you’d expect to pay $4,000-$10,000 in closing costs with an FHA loan.
The major closing costs unique to FHA loans are:
Upfront Mortgage Insurance Premium (UFMIP) – This 1. 75% fee insures your loan for the lender. On a $200,000 loan, it would equal $3,500.
Monthly Mortgage Insurance Premium (MIP) – An annual fee paid monthly along with your mortgage payment. This is 0.8-1.05% of your loan amount per year.
Are Closing Costs Part of the Down Payment on an FHA Loan?
No, closing costs are separate from and in addition to your down payment.
For that $200,000 home example:
- Down payment (3.5%) would be $7,000
- Estimated closing costs (3%) would be $6,000
Your total upfront cash needed at closing is $7,000 + $6,000 = $13,000.
The down payment counts toward your investment in the home. Closing costs pay for processing and services.
Can You Include Closing Costs in an FHA Loan?
Yes, you can roll your FHA closing costs into the mortgage loan amount in most cases. However, this increases your loan balance, monthly mortgage payment, and overall interest paid over the life of the loan.
Whether it makes sense depends on your financial situation:
-
If you need to conserve cash for the down payment, financing closing costs could help you get approved and close.
-
If you have enough savings, paying closing costs upfront avoids interest and saves money long-term.
Talk to your lender to see if rolling closing costs into your FHA loan is an option. There’s typically no penalty for doing so.
How to Reduce FHA Closing Costs
Closing costs may feel like an unavoidable expense when buying a home. But you do have options to reduce your out-of-pocket costs with an FHA mortgage:
-
Shop around and compare fees from multiple lenders. Discount lenders like online or credit union lenders may charge less.
-
See if the seller will pay some of your closing costs. They can pay up to 6% of the purchase price.
-
Take out a slightly higher interest rate in return for lender credits to offset costs.
-
Look into down payment assistance programs that help with closing costs too.
-
Ask family for help with closing costs as a gift. FHA allows gift funds.
-
See if your employer offers help with down payment or closing costs as a benefit.
-
Opt to pay for your own appraisal or other services to save on lender charges.
With a little creativity and effort, you can reduce your out-of-pocket expenses at closing on an FHA home loan. This can help make homebuying more affordable.
The Bottom Line
When you purchase a home with an FHA loan, closing costs and down payment are two distinct upfront expenses you must budget for:
-
Down Payment – At least 3.5% of the purchase price goes toward your equity in the home.
-
Closing Costs – 2-5% of the purchase price goes toward lender and third party fees to process the mortgage.
The down payment is not counted toward your closing costs. You’ll need to pay both separately to buy and close on an FHA home loan. But there are ways to lower your closing costs through shopping around, negotiation, and assistance programs.
How much are FHA closing costs?
FHA closing costs vary widely by lender and location. Typically, a borrower can expect to pay between 2 percent and 6 percent of the home’s purchase price in closing costs. On a $400,000 home, for example, you’d need to budget $8,000 to $24,000 to cover your closing costs.
Finance your upfront mortgage insurance premium
If you’re worried about having enough cash at the closing table, you can roll your upfront MIP into your loan amount. Keep in mind that this will increase your monthly payments and the total interest you pay on your loan.
FHA Closing Costs And Down Payment Guidelines And Requirements
FAQ
Is down payment factored into closing costs?
The answer is no; a down payment is not typically included in closing costs.
What are the closing costs on an FHA loan?
FHA loan closing costs are typically 2 percent to 6 percent of a home’s purchase price. They’re charged in addition to the down payment requirement. Feb 18, 2025.
Can a down payment be included in an FHA loan?
A down payment is required 100% of the time for new purchase FHA loans and your down payment amount may be affected by your credit scores. Expect to make a minimum down payment of 3. 5% down payment if your credit score meets FHA and lender requirements; everyone else will have to pay at least 10% down.
Does total closing cost include down payment?
Do closing costs include a down payment? No, your closings costs won’t include a down payment. But some lenders will combine all of the funds required at closing and call it “cash due at closing” which bundles closing costs and the down payment amount — not including the earnest money.