How to Get the FHA to Pay Closing Costs

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Closing costs can total thousands of dollars—be prepared.
Closing costs can total thousands of dollars—be prepared. (Image: Comstock/Comstock/Getty Images)

Federal Housing Administration (FHA) home loans offer easier qualification terms for a borrower who is seeking to purchase a home. The catch? Although FHA loans used to cost borrowers less to close, that's no longer true. As a result, the FHA allows sellers to kick in toward closing costs, and those who are refinancing can roll them into the new loan, provided there's enough equity.

Things You'll Need

  • Sale agreement
  • Good faith estimate

Read your Good Faith Estimate to review your closing costs. They include origination fees, attorney fees, appraisal and inspection fees, title search and policy fees and credit reporting fees, according to the website HousingWire.com. Down payments are not considered part of closing costs.

Ask your seller if she's willing to offer concessions to help defray the closing costs. In 2010, the FHA announced that sellers will be able to offer 3 percent of the sale price as a concession. In past years, the FHA allowed up to 6 percent; however, the law changed to reduce the risk of inflated appraisals.

Buy a Department of Housing and Urban Development (HUD) home. HUD homes are properties that are owned by the government because a homeowner defaulted on an FHA-backed loan; the government then sells the home to recover the losses on the loan. As a result, many HUD homes offer closing cost assistance.

Alternatively, refinance your FHA loan through a "no-cost" streamline mortgage. You must have an appraisal to qualify—along with enough equity in the home to cover the cost of closing.

Tips & Warnings

  • The FHA does not provide assistance for closing costs, except in the cases stated above. Buyers should be prepared to spend between 3 percent and 5 percent of the loan's value to close a loan.

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