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What Fees Does the Seller Have When Selling to Someone With an FHA Mortgage?

by K.C. Hernandez

The more buyers you have competing for your home, the higher the price you're likely to fetch as a seller. The Federal Housing Administration has become a major source of financing for first-time homebuyers and borrowers of limited financial means. As such, you may receive a combination of FHA, conventional and cash offers on your home. Consider the fees you may face with an FHA buyer when deciding which offer to accept.

The Basics

Both the seller and buyer have closing costs, also called settlement fees. They cover services received during the transaction, like escrow, attorney, title, notary and messengers. Sellers also have to pay off any existing loans and liens on the property to convey ownership to the buyer. The FHA, which insures lenders against losses, limits closing costs to those that are reasonable and customary for a particular market. If negotiated on the contract, the FHA allows the seller to pay the buyer's portion of closing costs up to a certain amount.

Concessions

The typical FHA buyer has limited funds and contributes only 3.5 percent of the sale price as a down payment. Providing closing cost concessions helps the buyer make ends meet at settlement and may also boost the sale price of your home. Many sellers are willing to pay a little more at closing when the price is right. The FHA allows you to pay up to 6 percent of the sale price in concessions. The money can cover any cost other than a tax service fee, which is a lender fee payable to a third party for managing real estate tax payments.

Necessary Repairs

The FHA may require certain repairs on a home. These include health and safety hazards that can affect occupant safety or the home's future marketability, such as chipped or peeling paint, active termite infestation, a leaky roof, broken windows, faulty plumbing or a malfunctioning electrical system. Buyers are unlikely to pay for such repairs due to their limited funds and the risk involved in repairing a home that is not yet their own, so sellers usually have to pay for them. If your home has serious to moderate defects, the FHA lender may require you to fix items before the close of escrow.

Considerations

Offering to pay an FHA borrower's fees can be a powerful incentive to compete for your home. In 2012, the national average cost of closing on a $200,000 mortgage was $3,754, according to a Bankrate.com survey. If your home is in good condition or you can afford to bring it up to FHA standards, giving up a bit of your sale proceeds can ultimately improve your bottom line due to the increased number of offers you can expect from FHA buyers.