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FHA Closing Costs
Explained

FHA loans have low down payment, but there are still closing costs. The good news: FHA protects you from many fees other borrowers pay, and strategies exist to close with $0 out of pocket.

COST BREAKDOWN

Typical FHA Closing Costs on a $400K Home

Item
Amount
Can Finance?
FHA Upfront MIP
2.15% first use, 3.5% down
$8,600
Yes
Title Insurance & Escrow
Varies by state
$2,200
No
FHA Appraisal
Required by FHA
$600
No
Recording Fees
County recording
$150
No
Prepaid Interest
Closing to month end
$1,000
No
Homeowners Insurance
First year prepaid
$1,400
No
Total Estimated Closing Costs
$13,950
Compare homeowners insurance at valleywestinsurance.services →
$0 STRATEGY

How to Close with $0 Out of Pocket

Seller Credits

FHA allows sellers to contribute up to 4% of the purchase price toward your closing costs. On a $400K home, that is $16,000 — more than enough to cover everything.

Lender Credits

Accept a slightly higher interest rate (e.g., 5.875% instead of 5.750%) and the lender provides a credit toward your closing costs. Can cover $3,000-8,000+ depending on loan size.

Finance the Upfront MIP

The FHA upfront MIP ($8,600) can be rolled into your loan balance. This removes the largest closing cost from your pocket. Combined with seller credits, you can close with truly $0.

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FHA PROTECTS YOU

Fees FHA Borrowers Do NOT Pay

The FHA prohibits lenders from charging these fees to FHA borrowers. This is one of the strongest borrower protections in the mortgage industry.

No prepayment penalty — pay off early anytime
No broker commission charged to borrower
No attorney fee (in most states)
No HUD/FHA inspection fee
No mortgage insurance — ever
No excessive origination charges
No real estate commission charged to buyer
No notary fee (in most cases)

Compare with FHA closing costs and conventional closing costs to see the difference.

FAQ

Closing Cost Questions

FHA closing costs typically range from 2-5% of the home price. On a $400,000 purchase, expect $8,000-$14,000 in total closing costs. The largest item is usually the FHA upfront MIP (2.15% first use). However, with seller credits and lender credits, many FHA buyers close with very little or $0 out of pocket.
Yes. FHA allows sellers to pay up to 4% of the purchase price toward your closing costs. On a $400K home, that is $16,000 — more than enough to cover all typical closing costs. This is negotiated as part of your purchase offer. Many sellers agree to this, especially in balanced markets.
The FHA upfront MIP is the largest closing cost for most FHA borrowers at 2.15% first use ($8,600 on $400K). However, it can be financed into your loan so you do not pay it out of pocket. Starting in 2026, the upfront MIP is also tax-deductible. Buyers with 10%+ FHA disability rating are completely exempt.
You can finance the FHA upfront MIP into your loan. Other closing costs cannot be added to the loan balance, but they can be covered by seller credits, lender credits, or gift funds. With the right strategy, you can close a FHA purchase with $0 out of pocket.
FHA closing costs are generally lower because FHA prohibits many fees that FHA and conventional borrowers pay (like mortgage insurance, prepayment penalties, and certain lender fees). The FHA upfront MIP is the main cost, but it replaces the PMI that FHA and conventional charge monthly. Over time, FHA is significantly cheaper.
RELATED

Related Resources

FHA Upfront MIP DetailsFHA Purchase ProcessPayment CalculatorFHA Loan LimitsFirst-Time Buyer Guide
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Related Resources

FHA MIPFHA PurchasePayment CalculatorFHA Loan GuideFHA Limits
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FHA Resources

→ FHA Requirements → FHA Rates Today → FHA Calculator → Credit Score Guide → Down Payment Guide → FHA vs Conventional → First-Time Buyer → Get Pre-Approved → Closing Costs → Pros & Cons
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FAQ

Frequently Asked Questions

FHA loan closing costs include the FHA upfront MIP (1.25-3.3%), appraisal fee ($500-800), title insurance, recording fees, survey fee, and credit report fee. Valley West Mortgage charges zero origination or processing fees. Total closing costs typically range from 2-5% of the loan amount.

Yes. On a FHA loan, the seller can pay up to 4% of the purchase price toward the buyer's closing costs and concessions. This includes discount points, prepaid taxes and insurance, and the FHA upfront MIP. This is one of the most generous seller concession limits among all loan types.

The FHA upfront MIP is a one-time payment to the FHA that funds the loan guarantee program. For first-time use with 3.5% down, the fee is 2.15% of the loan amount. The fee decreases with larger down payments and increases for subsequent FHA loan use.

Yes. The FHA prohibits lenders from charging buyers for attorney fees, real estate agent commissions, brokerage fees, or prepayment penalties. These are known as non-allowable fees. Valley West Mortgage also waives all origination and processing fees.

The FHA upfront MIP can be financed into the loan amount. Other closing costs generally cannot be rolled into a FHA purchase loan, but the seller can pay them. On a FHA refinance (FHA Streamline), most closing costs can be included in the new loan balance.

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