If you are considering an FHA loan, there are several things you should consider before purchasing a home with the help of the Department of Housing and Urban Development (HUD). HUD offers many benefits including a reasonable interest rate, good credit score, no prepayment penalties, and a five-year or ten-year warranty on the loan. However, there are several disadvantages that you should consider as well before purchasing an FHA loan. One disadvantage is the closing cost. An FHA loan may have higher closing costs than a conventional loan, because there are more risks involved with an FHA loan. Here are several more factors to consider in choosing an FHA loan:

FHA Closing Costs. FHA closing costs typically average between 2% and 4% of the original loan amount. Your closing expenses will depend on a number of factors including your loan balance, credit rating, and lender costs. Some of these costs are typical for all FHA loans, while others are third-party or lender-based fees including your appraisal, title companies, and real estate appraisals.

Home Buyer’s fees are also called origination fees and apply when you close your home purchase. These can add up over time, so you must budget for this cost. Some home buyers mistakenly believe that the closing costs are simply for purchasing the home and assume nothing else will happen until they have sold the home. This assumption is wrong. Your home purchase price will go up if you sell the home.

Home buyer’s fee charged by the bank is not a loan. It is part of loan processing and is one of several services provided to customers. It allows the customer to pay his or her closing expenses in one lump sum and eliminates the need to pay different fees for each transaction. The loan officer receives a percentage of this lump sum from the customer, and the customer pays the remainder to the lender. This portion may be tax deductible, depending on the state where the property is located.

Credit report closing fee is another common FHA service charge. This charge is assessed to the customer if he or she requests it be waived during the home purchase process. Many customers believe that the closing on their credit reports is final and cannot be changed, but that is not true. It is wise to request that the closing on one’s credit report to be allowed to take effect before taxes are due.

Another common FHA service charge is appraisal fees charged to the customer for selling his or her home. Appraisal fees can vary greatly and are not included in the standard closing costs. These fees are assessed at the time of the application and again at the time of the closing. It is wise to request that these fees charged be waived during the application process.

A good faith estimate is a term used by lenders to determine whether they will allow a loan modification to proceed after a customer has been turned down. This term is not part of standard closing costs and is used as a factor when determining whether to approve the application. If the lender determines that the cost of a loan workout will be greater than the value of the house that has been sold, the lender may require that the customer provide additional documentation, such as a credit score statement.

It is also possible that a borrower who obtains a higher interest rate through a FHA loan workout will not be able to obtain other loans in the future. For this reason, it is important to note that the credit scores that lenders use to approve or deny loans will not be altered by a FHA loan workout. This is good news for borrowers because the FHA has specific requirements that make it difficult for many applicants to successfully obtain loans.