| a. | General. All closing costs assessed to the homebuyer must comply with the Real Estate Settlement Procedures Act (RESPA; 24 CFR Part 3500.) All fees charged must be for services that are actually performed and must bear a reasonable relationship to the service provided. Section 184 borrowers must not be charged underwriting fees, processing fees, application fees and tax service fees. Courier fees may be charged only if needed by the borrower and the borrower agrees (in writing, prior to closing) to pay the fee. |
| b. | Financed Closing Costs. When calculating the acquisition cost, lenders may add allowable closing costs to the sales price or contractor’s price as stated in the written cost estimate. Those closing costs that may be added to the sales price or the contractor’s written price estimate when calculating the acquisition cost are those to be paid by the borrower and must be typical, reasonable and customary for the area (as determined by HUD) and may include: |
| 1. | The appraisal fee and any inspection fees. (For single close loans the inspections fees are included on the Maximum Mortgage Calculation Worksheet as part of the total cost to construct.) |
| 2. | Actual cost of credit reports. |
| 3. | Deposit verification fees. |
| 4. | Borrower home inspection fees (up to $300). |
| 5. | Cost of title examination and title insurance (where applicable). |
| 6. | Document preparation (if performed by a third party not controlled by the lender). |
| 8. | Attorney’s fees (if the attorney is not an employee of the mortgagee). |
| 10. | Test and certification fees (such as water or environmental tests). |
| 11. | Settlement fees (if the closing agent is not an employee of the mortgagee and if the settlement agent is an independent company or a subsidiary that regularly closes loans for several different mortgagees). |
| 12. | Loan origination fee not to exceed one percent of the mortgage amount before the guarantee fee (base loan amount). The loan origination fee may total up to 2.5 percent of the base loan amount when the loan involves construction draws on single close new construction or rehabilitation loans. |
HUD’s definition of closing costs does not include discount points and prepaids (hazard insurance/taxes). Discount points and prepaids paid by the borrower are included as part of the borrower’s cash needed to close.
| c. | Loan Guarantee Fee.The 1% loan guarantee fee is 100% financeable but is not included in the costs listed under Paragraph 5.17(b). (See paragraph 5.20a.) This amount may be added directly onto the mortgage amount. |
| d. | Lender Paid Closing Costs. Lenders may pay the borrower’s closing costs (and prepaid items) by charging a premium price that may include additional discount points paid by the borrower or the seller. The seller may pay the borrower’s closing costs (and prepaid items). |
Closing costs paid in this manner can not be added to the sales price or contractor’s written price estimate when calculating the acquisition cost and the maximum mortgage amount, but must be disclosed on the HUD-1 Settlement Statement. The amount paid on the borrower’s behalf for each item may not exceed the allowable fee recognized by the HUD office having jurisdiction where the property is located.
| e. | Up-Front Estimate of Closing Costs. Lenders must comply with the provisions of RESPA and provide loan applicants with a Good Faith Estimate of settlement costs. The estimate must contain the settlement charges that the borrower will normally pay at or before settlement based upon common practice in the locality of the mortgaged property. The estimate of closing costs used in calculating the acquisition cost and mortgage during processing and underwriting must be a reasonable reflection of actual closing costs at the time of settlement. |
Lenders must ensure that the initial estimate of closing costs is realistic, given the likely costs for the particular property. If the estimated closing costs used to calculate the acquisition cost and mortgage result in a mortgage that exceeds by more than $250 the maximum mortgage based on actual charges, the mortgage amount must be recalculated before settlement. It is the lender’s responsibility to ensure that its loans close in compliance with this requirement.
