***Who and how is the decision made concerning what closing costs maybe rolled into an FHA loan.
Is this at the discretion of the loan officer? Does FHA have criteria concerning what costs maybe included?***
When applying for an FHA loan for a purchase, there is a maximum loan amount that is determined by the lower of the purchase price or appraisal. On top of this figure the only allowable finance charge is the Upfront Mortgage Insurance Premium to be added to the maximum loan amount.
Theoretically, it would be possible to roll other finance charges (specifically, application fees (including housing IHFA), appraisal fees on non HUD owned properties, buyer/broker fees, closing fees (third party only), credit report, document prep fee, flood determination insurance, flood certification, home inspectionservice fee, manufactured home certification, origination fee (up to 1%), pest inspection, state document tax, survey,transfer tax, title insurance, and well and septic) into the loan up to the maximum loan amount.
Rarely does this enter into the scenario because the difference between the MLA (maximum loan amount) and the purchase price gives you a required down payment amount for an FHA loan. Add in the closing costs associated with the loan and subtract any credits (down payment and any paid items) and you will get a figure that shows "required cash to close." There are a few exceptions to this and are as follows:
C. Additions to the Mortgage Amount. In some cases, the maximum
mortgage amount may be increased. Except for solar energy systems
discussed below, an increase generally is permitted only when the
appraised value exceeds the sales price. Only the amount by which
the value exceeds the sales price may be added; any remaining costs
become part of the borrower's settlement requirements. The following
may result in an increase to the mortgage amount:
1. Repairs and Improvements. Repairs and improvements required by
the appraiser as essential for property eligibility and to be paid by
the borrower may be added to the sales price before calculating the
mortgage amount. (The appraised value will reflect these
requirements.) For the cost of repairs and improvements to be
eligible for inclusion in the mortgage amount, the sales contract or
addendum must identify the borrower as responsible for paying for or
otherwise completing the repairs or improvements.
The amount that may be added to the sales price before calculating
the maximum mortgage amount is the lowest of:
a. The amount the value of the property exceeds the sales price; or
b. The appraiser's estimate of repairs and improvements; or
c. The amount of the contractor's bid, if available.
Only repairs and improvements required by the appraiser may be
included. Any repairs completed by the borrower on the property
before the appraisal is made are not eligible for inclusion in
calculating the maximum mortgage. The amount that cannot be financed
into the mortgage will become part of the borrower's required cash
investment.
If repairs cannot be completed before loan closing due to
weather-related delays, the lender must establish an escrow account
to ensure eventual completion of all required repairs. See HUD
Handbook 4145.1 REV-2 for details.
2. Energy-Related Weatherization Items. If weatherization items
are to be added to the property and paid for by the borrower, the
mortgage amount may be increased by the cost of those items as
described below. Weatherization items include thermostats,
insulation, storm windows and doors, weather stripping and caulking,
etc. These items may be added to both the sales price and the
appraised value before determining the maximum mortgage amount. (A
contractor's statement of cost of work completed or a buyer's
estimate of the cost of materials must be submitted. See HUD
Handbook 4150.1 REV-1 for details.) If the weatherization items
cannot be completed before loan closing due to weather-related
delays, the lender must establish an escrow account to ensure
eventual completion of all items. See HUD Handbook 4145.1 REV-2 for
details.
The amount that may be added in calculating the maximum mortgage is:
a. $2000 without a separate value determination; or
b. Up to $3500 if supported by a value determination by an approved
or FHA roster appraiser or DE underwriter; or
c. More than $3500 subject to a value determination by an approved
or FHA roster appraiser or DE underwriter and a separate on-site
inspection made by a FHA-approved fee inspector or DE staff
appraiser.
3. Solar Energy Systems. The cost of solar energy systems may be
added directly to the mortgage amount (before adding the UFMIP) after
applying the LTV ratio limits. The statutory mortgage limit for the
area also may be exceeded by 20 percent to accommodate the cost of
the system.
The amount that may be added to the mortgage is limited to the lesser
of the solar energy system's replacement cost or its effect on the
property's market value. Both active and passive solar systems are
acceptable, as are wind-driven systems. See HUD Handbooks 4150.1
REV-1 and 4930.2 for details.
On an FHA refinance, yes, allowable closing costs are able to be rolled into the loan amount as long as the new loan amount does not exceed the original loan amount.
