Established in 1934 to provide affordable home financing, the Federal Housing Administration (FHA) insures loans offered by approved lenders to qualified borrowers. Several expenses are associated with the processing of FHA loans. Commonly known as closing costs, these expenses are determined and paid to the lenders and other third parties facilitating the loan process. Closing costs for FHA loans usually vary by state and lender. In Maryland, closing costs range between 2% and 5% of the loan amount. For a typical homebuyer in Maryland, FHA loans average $14,721 in closing costs.
Closing Costs to Expect
Lenders have varying items under closing costs depending on their policies, but some are standard. The most common costs for FHA loans in Maryland include:
Loan Origination Fees
This fee covers administrative costs incurred while processing a new loan application. It ranges from 0.5% to 1% of the total loan amount.
Mortgage/Discount Points
Some lenders allow borrowers to trade off a lower interest rate for a fee payable at closing, known as mortgage or discount points. One point equals 1% of the loan amount. It can lower the interest rate by up to 0.25%, depending on the lender, mortgage type, and prevailing market conditions.
Credit Report Fee
Lenders usually conduct a hard inquiry into a borrower's credit history to determine their creditworthiness as part of the loan approval process. This service, which costs around $60, is extended regardless of whether the borrower's application is approved.
Underwriting Fee
The borrower incurs costs when evaluating the borrower's loan application and associated risks before making a lending decision. This fee may be bundled into the loan origination fee or charged separately. The latter can be a flat fee or a percentage of the loan, typically around 0.5%.
Closing Costs Payable to Third Parties
Loan approval also relies on the services of other professionals who ensure that the property is in good condition, documents are properly filed, and the process is streamlined. Borrowers bear the costs of these services.
Common third-party closing costs in Maryland include the following:
Appraisal Fee
Lenders usually require an appraisal before they can commit to financing a property. This helps establish the market value of the property and ensures that the loan amount is justifiable. An FHA-approved appraiser performs this service, which costs between $400 and $900, depending on property size and location.
Title Search and Title Insurance
Lenders require a title search to verify that the property’s title is free from any liens or encumbrances. This service costs a one-time fee between $75 and $200. In Maryland, lenders usually recommend that borrowers take up owner's and lender's title insurance policies. These are paid separately for around 0.5 to 1% of the home's sale price.
Attorney’s Fees
In Maryland, it's customary for an attorney to oversee the closing process. The attorney ensures all documents are properly filed, the title is transferred legally, and the borrower's rights are protected, among other legal duties. Maryland attorneys charge $80 to $600 per hour for closing, depending on the deal’s complexity.
Escrow Fees
Escrow accounts securely hold the earnest money deposit and closing costs until the closing process is complete to ensure a smooth and secure closing. The average cost of these services falls between 1 and 2% of the purchase price.
How to Plan for FHA Closing Costs in Maryland
FHA loans are attractive financing options for homebuyers, given that the down payment required is only 3.5% of the purchase price. Plus, borrowers with lower credit scores can still qualify. The caveat is that borrowers have to budget for closing costs.
As such, borrowers should plan to qualify for these loans. This involves:
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Looking out for lenders that offer FHA closing cost assistance programs- Getting an estimate from a Maryland FHA-approved lender
- Saving up for closing costs
- Negotiating to reduce some of the fees
- Rolling in some costs into the loan to lower upfront costs
Maximize Savings on FHA Loans With Woodsboro Bank
Community banking is at the core of Woodsboro Bank's operations. As an FHA-approved lender, Woodsboro Bank offers FHA loans with reasonable rates and fees. We have simplified the application process to help Maryland homebuyers secure financing. Contact Woodsboro Bank today to obtain an FHA loan in Maryland.