FHA Loan Questions: what are the fees?

Question

Greetings,

I am new to the real estate realm and currently working on my pre-approval. I've been working with a mortgage broker but I'm unsure if he's being 100% honest with me, based on the information he is giving me, there is three fees when it comes to FHA.

- Up front mortgage insurance premium (UFMIP), 1.75% of loan amount
- Annual mortgage insurance premium, annual .85% added monthly
- An additional 1.75% rolled into the loan

Now based on my research, I agree on the first two, being the UPMIP and the annual MIP but I have yet to hear anything about the additional 1.75% rolled into the loan. He showed me a copy of an example loan agreement and I saw the UPMIP baked into the closing costs and the annual MIP baked into the monthly payment but when I tried to find the additional 1.75%, it was no where to be found. Based on the information he gave me, when we ran the numbers, the loan amount did increase by 1.75% but instead of it being in the detailed breakdown, based on his words, it's a "hidden fee".

I don't believe in "hidden fees" and what it usually means is, people are too lazy to read the breakdown. Can anyone attest to what he is telling me? After more research, since he's a mortgage broker, I realized that he needs to be paid, and that maybe this hidden fee is his cost for finding me a cheaper deal? Which makes sense but at the same time I don't appreciate being lied too (my current assumption)

Can anyone help me verify his statements? Everything I've read thus far seems to indicate there is only an UPMIP and Annual MIP.

Thanks for all the help in advance.

P.S As far as I understand the UPMIP can be paid out right at the time of closing or it can be rolled into the loan, is this correct? If so, if it's rolled into the loan, in what section of the loan agreement would I find this cost, in the closing cost? I have a feeling the closing cost amount I am seeing here is actually the mortgage broker payment?? Since he's adamant about seller concessions.

Chris Michel · Answer

@Chris MasonAH HA, yes this is it, this was the same thing that the broker showed me that made things confusing for me!> But the gov't forms list it out multiple times, causing confusion

I think this is where I got confused, since I saw it in so many different places

Just to make sure I am following, the 1.75% UPMIP is rolled into the loan amount and displayed in the section B, closing cost. Then the .85% monthly can be found under the project payments or APR at the bottom?

Just to run some math, what happens if the seller pays all of the closing cost (in the example), will the UPMIP be covered and not rolled into the loan or will it always be rolled into the loan?

By the way, you are the first person to explain this to me so well, so I appreciate it! I got so much misinformation along the way.

Chris Mason · Answer

If Realtors are involved, "seller paying X towards closing costs" will not be assumed to involve the UFMIP. You will have to be a proactive advocate to make that happen, but it can happen.

Chris Mason · Answer

No, on a typical FHA transaction, you will be hit with it 1 time in the form of it being baked into your loan balance. But the gov't forms list it out multiple times, causing confusion. Typically folks in the 3.5% down bucket can't afford an extra 1.75% paid out of pocket, so it's rolled into the loan balance as a standard (but technically optional) thing. You're reading too much into this.

Here's a random example FHA LE, set up the way FHA are typically set up.http://bobheinmortgage.com/wp-content/uploads/2015/10/LE-Example-3.5-Down-FHA.pdf

The UFMIP is on page 2 box b, page 2 calculating cash to close, and page 3 it's included in the APR. But it's still just 1.75%, a single time, rolled into your loan balance. Note that they are putting 3.5% down, but the loan amount on page 1 isn't 96.5% of the purchase price, it's higher, that's where the 1.75% is being paid. A single time... you put 3.5% down, but only have ~1.8% equity, that and the monthly mortgage insurance are how the entire FHA loan program is funded, and it wouldn't exist without that.

(In the real world, your exact cash to close will never be an exact round number like $7,000)

Melvin List · Answer

@Chris Michel you will only have the 1.75% on top of your base loan amount and the .85% monthly.  If there is another 1.75% in box A of your loan estimate chances are it is a lender fee.  You may be dealing with a lender and not a broker.  Do you have a loan estimate?

Chris Mason · Answer

The 1st and 3rd 1.75% are one and the same.

The gov't disclosures do not make this obvious, it actually appears THREE times on the gov't disclosures if you look closely, even though there is only a single 1.75% paid out (typically by rolling it into your loan balance).

I suspect the gov't regulators that designed the current disclosure forms had an anti-FHA bias, the pre-2015 disclosures didn't cause as much confusion, there's no other typical/standard fee that they make look like it's charged 3 times...

Chris Michel · Answer

@Chris Mason Can you make your statement a little more clear for me. Are you saying the my broker is correct that I will be hit with this fee three times?Do you have any links where I can do some reading on this?If you could explain the fees a little more and how the affect the loan balance and where they come up that would be great thanks.

DJ Richmond · Answer

Hi @Chris Michel, I think part 1 and 3 are the same thing. The UFMIP is 1.75% of the loan that will get added to the loan or paid out of pocket as a closing cost. A knowledgeable loan officer should be able to clearly communicate these questions you have. Like mentioned above, you may want to consult another loan officer if you're not comfortable with what you're being told.

FHA Loan Questions: what are the fees?

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