By the end of this guide, you will have a line-by-line plan to reduce mortgage closing costs on an FHA purchase, including which fees you can negotiate, which are fixed, and who is allowed to pay them. Before you start, gather a recent pay stub, your target price range, and your Loan Estimate if you already have one. Duane Buziak walks through each step from the FHA borrower’s side of the table.
Quick answer: To reduce mortgage closing costs on an FHA loan, sort your Loan Estimate into fixed and negotiable fees, finance the 1.75% upfront mortgage insurance premium instead of paying it in cash, compare itemized Loan Estimates from several sources on the same day, shop the services your lender lets you shop, and negotiate seller concessions of up to 6% of the sale price into the contract. Then choose your lock period and closing date deliberately, and check the Closing Disclosure against your last Loan Estimate.
Step 1: Separate Fixed Costs From Negotiable Ones
Open your Loan Estimate and mark each section with one of three labels: fixed, shoppable, or negotiable.
- Section A, origination charges: negotiable. This is where lender or broker compensation, processing, and underwriting fees sit.
- Section B, services you cannot shop for: mostly fixed or limited. The appraisal and credit report are here, and the lender chooses the providers.
- Section C, services you can shop for: shoppable. Title services and settlement fees usually live here.
- Section E, taxes and government fees: fixed. Recording and transfer charges are set by the locality or state.
- Sections F through H, prepaids, escrow, and other: timing-based, not true fees.
The 1.75% upfront mortgage insurance premium (UFMIP) is also fixed. It is set by HUD, so no lender can discount it. Within the flexible group, you have real room on broker or lender compensation and processing fees. You also have room on title services from the shoppable list, and some on the credit report charge. The appraisal price is largely set by HUD-assigned rules and local market rates.
The costly misunderstanding is treating prepaids and escrow reserves as lender fees. They inflate the cash-to-close figure, but they are your own money, set aside for property taxes, homeowners insurance, and interest. As an illustration, imagine a $300,000 home in Henrico County. At the county’s real estate rate of $0.85 per $100 of assessed value (henrico.us, as of October 2026), and assuming the assessment matches the price, annual tax is $2,550, or $212.50 a month. Three months of that deposited into escrow is $637.50. It shows up on your estimate, but you are not paying a fee. You are pre-funding a bill you would owe anyway.
Step 2: Understand the FHA-Specific Charges Before You Shop
Three FHA charges behave differently from anything in a generic closing cost guide, and knowing them keeps you from chasing savings that do not exist.
UFMIP. The upfront premium is 1.75% of the base loan amount. You can pay it at closing or finance it into the loan, and financing it is the usual choice for buyers watching cash. Confirm the current rate against HUD Handbook 4000.1 and the HUD mortgagee letters (as of October 2026, it remains 1.75%).
Annual MIP. This is billed monthly with your payment, so it does not add to cash to close. Under HUD Mortgagee Letter 2023-05, a 30-year loan with a base amount at or below $726,200 and LTV above 95% carries 0.55% a year. At 95% LTV or below, the rate is 0.50%. Tiers change with term, loan size, and LTV, so confirm yours in Handbook 4000.1 before quoting it to anyone.
Appraisal and inspections. The appraisal is ordered through your FHA case number and assigned by the lender, and the FHA-required inspections are tied to the property. You cannot shop your way to a cheaper FHA appraisal, though you should still compare how each lender itemizes it.
Here is a worked example. On a $300,000 purchase with 3.5% down ($10,500), the base loan is $289,500. UFMIP is about $5,066 (1.75%). Paid in cash, that is $5,066 added to your closing costs. Financed, your loan becomes about $294,566, and the premium never touches your cash-to-close figure. Annual MIP is calculated on the base loan: $289,500 at 0.55% is about $1,592 a year, roughly $133 a month. Financing UFMIP trades a slightly larger loan for far less cash upfront.
Step 3: Compare Loan Estimates From Multiple Lenders and Brokers
A comparison only works if the quotes are built the same way. Request each Loan Estimate on the same day, with the same loan amount, the same rate lock period, and the same FHA program. If one quote assumes a 30-day lock and another a 60-day lock, the prices are not comparable.
Then read three things on each one:
- The interest rate and any discount points or lender credit tied to it.
- Section A, origination charges, where lender and broker compensation shows up.
- Section J, total closing costs, plus the cash to close.
The lowest rate is not automatically the lowest cost. A rate that looks sharp but carries points can cost more upfront than a slightly higher rate with fewer fees, and the break-even depends on how long you keep the loan.
Duane Buziak is a mortgage broker, not a lender, so he can price an FHA file across hundreds of wholesale lenders rather than one rate sheet. His Dare to Compare challenge invites you to bring any competing Loan Estimate and see how it holds up against what the wholesale market can produce. His NoTouch Credit Pull is a soft pull, so you can get a real quote without a hard inquiry on your credit.
National lenders such as Rocket and Movement are fair comparison points. Ask each for an itemized estimate, and ask whether they need a hard credit pull before quoting, since practices differ and can change.
Finally, the CFPB’s TRID tolerance rules give your estimate teeth. Lender and broker origination charges generally cannot increase between the Loan Estimate and closing. Recording fees and shoppable services you pick from the lender’s list can rise only within a combined 10% limit. A locked, itemized estimate is something you can hold the other side to. See the CFPB’s Owning a Home resources for the tolerance details.
Step 4: Shop the Services You Are Allowed to Shop
When the lender lets you choose providers, the Loan Estimate comes with a Written List of Providers. Title insurance, the settlement or closing agent, a survey, and a pest inspection typically land in Section C. Treat that list as a starting point and call two or three of the providers.
When you call a title company, ask for these quotes:
- The lender’s title policy and the owner’s title policy, priced separately.
- Any simultaneous issue discount when both policies are bought together.
- The settlement or closing fee, and any separate fees for courier, wire, or document preparation.
In Virginia, title and settlement fees can differ noticeably between providers, so a few phone calls are worth the effort. Local recording and grantor or transfer tax amounts are set by government, so confirm them with the circuit court clerk’s office or your settlement agent as of your closing date. You will not shop those down, but you should know the real number rather than rely on an estimate.
Choose your home inspector on your own. An inspection is not a lender fee and will not appear on the Loan Estimate, but it is a real out-of-pocket cost to budget for early, usually paid at the time of inspection rather than at closing.
Mistake to avoid: picking a provider that is not on the written list without asking how the fee will be treated. Services you select off the list are generally not covered by the 10% tolerance limit, so the number can move. If you want a provider outside the list, get their quote in writing and have your loan officer or broker confirm how it will appear on the Closing Disclosure.
Step 5: Use Seller Concessions and Gift Funds Within FHA Limits
FHA lets the seller, and other interested parties such as a builder or agent, contribute up to 6% of the sale price toward closing costs, prepaids, and discount points. The cap is measured against the lesser of the sale price or the appraised value. Confirm the current limit in HUD Handbook 4000.1 (as of October 2026).
Two rules shape how you use it. Contributions cannot go toward your down payment, and any amount over 6% is treated as a reduction of the sales price when LTV is calculated. Negotiate the credit into the purchase contract early, since adding it after an inspection or appraisal tends to be harder.
Your minimum required investment of 3.5% must still come from you or from an acceptable gift source. A gift needs a signed gift letter naming the donor, the amount, and confirming no repayment is expected, plus a documented transfer trail. Plan for that paperwork before you need the money.
A tradeoff example. Suppose you offer $300,000 and ask for a $9,000 seller credit, which is 3% and well under the 6% cap. The credit only helps if the deal holds together: if you raise the price to compensate the seller, the appraisal must still support the higher number. If it comes in low, the credit may shrink or the contract may need renegotiating.
When the seller credit and a lender credit together cover your full list of costs, ask Duane Buziak about no-out-of-pocket closing options. That is a result of how a specific file is structured, not a promise that every buyer owes nothing at closing.
Step 6: Time Your Closing and Lock Your Rate Strategically
Closing late in the month shortens the stretch of prepaid interest you owe at the table. The interest is not forgiven, only shifted, and your first payment date moves with it. Make sure your rate lock still covers a later closing date before you commit to it.
Pick a lock period that comfortably exceeds your expected closing date. Extensions cost money, and a lock that is too short is a common source of avoidable fees. A longer lock may carry a slightly higher price, so weigh that against the risk of delays.
Next, choose between a lender credit and discount points:
- Lender credit: a higher rate in exchange for lower closing costs. Useful if cash to close is your constraint.
- Discount points: a lower rate in exchange for higher closing costs. Useful if you will keep the loan long enough to recoup them.
Compare the break-even. As an illustration, if $3,000 in points saves $50 a month, you recover the cost in 60 months. If you might sell or refinance sooner, the points lose money.
Finally, run the check that catches mistakes. You must receive your Closing Disclosure at least 3 business days before closing. Put it beside your last Loan Estimate and compare Section A, Section C, and the total in Section J. Question any increase in lender-controlled fees, since those are the ones TRID tolerances are meant to protect.
Eight Questions FHA Buyers Ask About Closing Costs
What counts as closing costs on an FHA loan?
They include origination charges, appraisal and credit report fees, title and settlement services, and government recording and transfer charges. Prepaids and escrow deposits appear in the same total but are your own money for taxes, insurance, and interest.
Can I finance the FHA upfront mortgage insurance premium?
Yes. The 1.75% UFMIP can be rolled into the loan, which keeps it out of your cash to close. Annual MIP is billed monthly and is not a closing cost.
How much can the seller pay toward my closing costs?
Up to 6% of the sale price for FHA, per HUD Handbook 4000.1. It can cover closing costs, prepaids, and discount points, but not your down payment.
Can gift funds cover my down payment and closing costs?
Acceptable gift funds can help with the minimum required investment and closing costs. You need a gift letter and a documented transfer from the donor.
Is a lower interest rate always cheaper?
No. A lower rate often comes with discount points that raise closing costs. Compare the rate, Section A, and Section J together, and calculate the break-even in months.
Can closing costs go up after I get my Loan Estimate?
Some can. Lender and broker origination charges generally cannot rise, while certain third-party and shoppable fees can move within tolerance limits. Prepaids and escrow amounts can change with timing and actual bills.
Does getting a quote from FHA Mortgages by Duane Buziak affect my credit?
No. The NoTouch Credit Pull is a soft pull, so there is no hard inquiry while you compare.
Is Duane Buziak a lender or a broker?
Duane Buziak is a mortgage broker. He can compare FHA pricing across hundreds of wholesale lenders instead of quoting from a single rate sheet.
Review Your Closing Disclosure Line by Line
Before closing, compare your Closing Disclosure line by line against your final Loan Estimate and ask Duane Buziak at FHA Mortgages by Duane Buziak to review it with you. Bring the Dare to Compare challenge too: any competing estimate gets measured against what hundreds of wholesale lenders can offer, all through a NoTouch Credit Pull with no hard inquiry.
Ready to take the first step toward homeownership with an FHA loan tailored to your needs? Schedule your free consultation today and discover how our award-winning team can help you navigate the path to your new home with competitive rates and expert guidance. Call 804-212-8663 or visit 4860 Cox Rd, Glen Allen, VA 23060. Coast2Coast Mortgage LLC, NMLS #1110647, licensed in FL, GA, KY, MD, NC, SC, TN, TX, VA, WV, and DC.
