February 1, 2012 in Mortgages

Dear Dr. Don,
We are looking to buy a home. We can only make a minimal down payment. Is it possible to roll the closing costs into the mortgage loan, or am I dreaming again?
— Joanie Jump-start

Dear Joanie,
You’re dreaming, but there is a way you can achieve the same result. With a fair credit score and sufficient income, financing from the Federal Housing Administration, or FHA, will let you borrow up to 96.5 percent of a home’s value. You can finance the upfront mortgage insurance premium, or MIP, by including it in the loan amount, but you can’t finance the closing costs.

Instead, closing costs can be paid in part or in full through seller concessions. Historically, the seller has been allowed to provide up to 6 percent of the purchase price of the home as a seller concession to be applied toward closing costs on an FHA loan.

The Department of Housing and Urban Development, or HUD, which oversees the FHA mortgage guarantee program, is considering steps that would reduce the amount of seller concessions allowed with an FHA loan. The thinking is that the concessions are baked into the home’s purchase price, which makes loans with high seller concessions riskier to insure.

So, if you’re looking to minimize the down payment you bring to closing and you can qualify for an FHA loan, talk to an FHA lender about loan limits, seller concessions and interest rates. Then start shopping for that new home.

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