Closing costs raise your cash to close
Your H4P down payment is the purchase price minus your HECM principal limit. Closing costs come out of the same transaction, so what you actually bring is:
On a typical purchase, closing costs add roughly $15,000–$35,000. The biggest piece is the FHA upfront mortgage insurance premium. Prepaid property taxes and homeowner's insurance come on top, as with any home purchase.
The four parts of H4P closing costs
1. Upfront FHA mortgage insurance premium: 2% of the maximum claim amount
This is usually the largest cost. It's 2% of the maximum claim amount, which on a purchase is the lesser of the purchase price, the appraised value, or the 2026 FHA limit of $1,249,125.
| Purchase price | Upfront MIP |
|---|---|
| $400,000 | $8,000 |
| $700,000 | $14,000 |
| $1,000,000 | $20,000 |
| $1,249,125 or more | $24,983 (capped) |
The upfront MIP is what makes the loan non-recourse: you or your heirs never owe more than the home is worth when the loan is repaid.
2. Origination fee: capped by HUD at $6,000
HUD limits what a lender can charge: the greater of $2,500 or 2% of the first $200,000 of the maximum claim amount plus 1% of the amount above $200,000, and never more than $6,000. Any purchase of about $400,000 or more reaches the cap. Some lenders reduce or waive origination on adjustable-rate HECMs, so it's worth asking.
3. Third-party costs
These are the same kinds of costs as on any home purchase:
- FHA appraisal: about $600–$900
- Title insurance (lender's policy) and escrow: about $2,500–$4,500 in San Diego County, depending on price and how escrow is split with the seller
- Recording, credit report, flood certification and other fees: a few hundred dollars
- HUD-approved counseling: typically $125–$200, often paid before the loan application rather than at closing
4. Prepaids and prorations
As with any purchase, you'll prepay or prorate property taxes and pay your first year of homeowner's insurance. These aren't loan costs, but they're part of your cash to close. Because you keep paying taxes and insurance for as long as you live in the home, your lender will also confirm through the financial assessment that you can cover them. In some cases that leads to a set-aside from your loan proceeds.
Ways to reduce closing costs
- Ask about lender credits. On adjustable-rate HECMs, lenders sometimes offer credits that offset origination or third-party costs in exchange for a slightly higher margin.
- Negotiate with the seller. Ask your agent which closing costs the seller can pay in your transaction; FHA rules limit what qualifies.
- Compare fixed and adjustable options. They price differently, and the right choice depends on whether you want a line of credit after closing.
