Overview of FHA Closing Costs
Closing costs are the fees and expenses you pay when finalizing your mortgage, separate from your down payment. For an FHA loan in Pennsylvania, total closing costs typically range from 2% to 5% of the purchase price. On a $250,000 home, that means $5,000 to $12,500 in addition to your down payment. Understanding these costs upfront helps you budget effectively and avoid surprises at the closing table.
Common FHA Closing Cost Items
FHA closing costs include both lender fees and third-party charges:
- Origination fee: Charged by the lender for processing the loan, typically 0.5% to 1% of the loan amount.
- Upfront MIP (UFMIP): 1.75% of the loan amount. This can be financed into the loan and is not an out-of-pocket cost at closing.
- Appraisal fee: FHA appraisals in Pennsylvania typically cost $400 to $600.
- Credit report fee: Usually $30 to $75 for a tri-merge credit report.
- Title search and insurance: Title insurance protects the lender (and optionally the buyer) against title defects. Costs vary but typically run $1,000 to $2,500 in Pennsylvania.
- Survey fee: If required, typically $300 to $500.
- Recording fees: Charged by the county to record the deed and mortgage, usually $100 to $300.
- Attorney fees: Pennsylvania often requires an attorney at closing, with fees ranging from $500 to $1,500.
- Flood certification: Typically $15 to $25.
Pennsylvania-Specific Costs: Transfer Taxes
Pennsylvania imposes a real estate transfer tax that significantly impacts closing costs:
- State transfer tax: 1% of the sale price, split equally between buyer and seller (0.5% each) unless otherwise negotiated.
- Local transfer tax: An additional 1% in most municipalities, also typically split between buyer and seller. Some municipalities charge more or less.
- Philadelphia transfer tax: Philadelphia has a higher combined transfer tax of 4.278% (3.278% city + 1% state), which is significantly above the statewide norm. Buyers in Philadelphia should plan for this substantial additional cost.
First-time homebuyers in Pennsylvania may be eligible for a transfer tax exemption or reduction in certain municipalities. Check with your local government or closing attorney about available exemptions.
Prepaid Items and Escrow Deposits
In addition to closing costs, you will need to fund prepaid items and escrow accounts:
- Prepaid interest: Daily interest from the closing date through the end of the month.
- Homeowner's insurance: Typically one year's premium paid upfront, plus two months deposited in escrow.
- Property taxes: Escrow deposits for property taxes, usually two to three months' worth depending on when taxes are due.
Ways to Reduce Closing Costs
- Negotiate seller concessions: FHA allows the seller to contribute up to 6% of the purchase price toward your closing costs. This is one of the most effective ways to reduce out-of-pocket expenses.
- Shop for services: Compare fees from multiple title companies, attorneys, and insurance providers.
- Lender credits: Accept a slightly higher interest rate in exchange for lender-paid closing costs.
- Down payment assistance programs: Some Pennsylvania programs, such as the PHFA Keystone Advantage loan, can be used for closing costs as well as down payment.
- Finance the UFMIP: Rolling the 1.75% upfront MIP into your loan reduces cash needed at closing.