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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.

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