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FHA Seller Concessions — How Much Can the Seller Pay?

Closing costs can add up to 2%–5% of the purchase price in California. The good news with FHA loans: the seller can pay a significant portion. Here’s how it works.

The 6% Rule

FHA allows sellers and interested parties (sellers, real estate agents, builders, developers) to contribute up to 6% of the sales price or appraised value (whichever is lower) toward the buyer’s closing costs and related expenses.

This 6% can cover:

  • Origination fees
  • Appraisal fee
  • Title charges
  • Prepaid items (homeowner’s insurance, property tax escrow, prepaid interest)
  • Discount points to buy down your interest rate
  • Temporary interest rate buydown costs (1-0, 2-1, or 3-2-1 buydowns)

What Seller Credits Cannot Cover

Seller concessions cannot be applied toward your down payment. The FHA Minimum Required Investment (MRI) — your 3.5% — must come from your own funds, gift funds, or an approved DPA program. Contributions exceeding 6% trigger a dollar-for-dollar reduction to the sales price.

How to Structure Seller Credits in California

  1. Negotiate the purchase price along with a seller credit in your offer (e.g., $600,000 purchase price with $15,000 seller credit — that’s 2.5%)
  2. Your lender applies the seller credit on the Closing Disclosure to offset your actual closing costs
  3. If the seller credit exceeds your actual closing costs, it must be reduced — you cannot receive cash back from leftover seller credits

Lender Credits

In addition to seller credits, your lender can provide a lender credit (derived from a slightly higher interest rate) to offset closing costs. Lender credits and seller credits can often be combined, potentially reducing your out-of-pocket costs at closing to near zero beyond the down payment.

Credit or price reduction: which helps more?

A seller credit pays costs at closing, while a lower price reduces the loan itself. Illustrative example, not a quote: on a $650,000 purchase, 6% is $39,000, the most the seller side can contribute. If you ask for a $20,000 credit, that is about 3.1% of the price and well within the cap. A $20,000 price cut instead lowers the base loan, which reduces the upfront premium and the monthly insurance, but it does not help you cover cash to close. Which is better depends on whether your constraint is monthly payment or cash on hand.

How the cap is measured

The 6% is calculated on the lower of the sales price or appraised value. If a $650,000 contract appraises at $630,000, the cap is based on $630,000, or $37,800. Credits must also be written into the purchase contract, appear on the Closing Disclosure and be used only for eligible costs, so unused credit is reduced rather than paid to you.

Common mistakes

  • Asking for a credit after the appraisal has already set the numbers
  • Requesting a credit larger than your actual costs and prepaids
  • Forgetting that agents and builders count as interested parties under the same cap
  • Agreeing to a credit verbally without an addendum
  • Trying to use the credit to meet the 3.5% minimum investment

Frequently asked questions

What if the home appraises for less than the price?

The 6% is based on the lower figure, so the maximum credit shrinks with the appraisal. Review your contract timelines so you can renegotiate if needed.

Can the credit pay for a rate buydown?

The page above lists discount points and temporary buydowns among eligible costs. Whether a buydown makes sense depends on how long you will keep the loan, so we compare it against a simple credit.

Do conventional loans allow the same?

Conventional limits depend on down payment and occupancy rather than a flat 6%. See our conventional seller concessions page for how that works.

Related guides

Practical Takeaways

  • Sellers can contribute up to 6% toward FHA buyer closing costs
  • Seller credits cannot cover your 3.5% down payment
  • Contributions above 6% reduce the maximum loan amount dollar-for-dollar
  • Lender credits and seller credits can be combined for maximum benefit
  • The 6% cap is measured on the lower of price or appraised value.
  • Put seller credits in writing in the purchase contract; unused credit is reduced, not paid out.
  • A price reduction lowers the loan; a credit lowers cash to close.