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Asking a seller to cover part of your closing costs is one of the most common ways FHA buyers reduce cash needed at closing. HUD limits how much help a seller — or anyone else with a financial stake in the sale — can provide, and going over that limit does not kill the deal, but it does shrink your loan.
What counts as an interested party
An "interested party" under HUD Handbook 4000.1 is anyone who financially benefits from the transaction closing: the seller, the builder, the real estate agent, the developer, or any entity affiliated with them. Contributions from these parties toward the buyer's costs are called interested party contributions (IPCs), and they are capped so that a seller cannot inflate the sales price and then quietly refund the difference to make the deal appear to close at full price.
The 6% cap
FHA limits IPCs to 6% of the lesser of the sales price or the appraised value. That 6% can be used for:
- Closing costs and settlement fees
- Prepaid items — per diem interest, property tax and insurance escrows
- Discount points and buydown fees
- Prepaid HOA dues
- FHA upfront mortgage insurance premium, if the lender permits it inside the cap
It cannot be used for:
- The borrower's minimum required investment (down payment)
- Reserves required for cash reserves on certain transactions
| Contribution type | Counts toward 6% cap? |
|---|---|
| Closing costs / title fees | Yes |
| Prepaid interest and escrows | Yes |
| Discount points | Yes |
| Real estate commission (normal) | No — not a buyer-side contribution |
| Down payment | No — cannot be covered by seller funds at all |
| Furniture, cars, gift cards | Treated as inducements to purchase, see below |
Inducements to purchase: the other trap
Some incentives are not "closing cost help" at all — they are things of value given to make the deal more attractive, called inducements to purchase. Examples include a seller-paid moving allowance, decorating allowances, free appliances beyond what's customary, or a paid-off HOA special assessment above a nominal amount. HUD requires the lender to subtract these dollar-for-dollar from the sales price before calculating loan-to-value, because they are not genuine closing-cost assistance — they are effectively a discount disguised to protect the contract price.
What happens if a seller offers too much
If total interested party contributions exceed 6%, the lender does not simply cap them at the door. HUD requires the excess to be treated as reducing the amount of financing available: the lender must reduce the mortgage dollar-for-dollar by the amount over the limit. The sales price stays the same; your loan amount goes down, so you need more cash (or a lower price) to make up the difference.
Worked example (illustration only)
Assume a $350,000 FHA purchase, 3.5% down, and a seller who agrees to a $25,000 closing cost credit.
- 6% of $350,000 = $21,000 maximum allowable seller contribution.
- The seller's offer of $25,000 exceeds the cap by $4,000.
- The lender must reduce the base loan amount by that $4,000, so the buyer needs to bring an additional $4,000 to closing (or negotiate the credit down to $21,000).
- The buyer's 3.5% down payment ($12,250) is calculated on the $350,000 price regardless of the concession — the seller cannot use any part of the credit to satisfy that requirement.
This is illustrative math to show the mechanics; your own numbers will depend on your appraised value, loan amount, and lender fees. Review your closing costs breakdown with your loan officer before finalizing a concession request.
Checklist before you ask for a concession
- Confirm your appraised value will support the sales price used to calculate 6% — see FHA appraisal requirements.
- Ask your lender for an itemized closing cost estimate before naming a number in the offer.
- Keep the request inside true closing costs and prepaids — avoid furniture, gift cards, or vehicles.
- Put the exact dollar amount, not a percentage, in the purchase contract when possible.
- Confirm the credit is disclosed on the Closing Disclosure and matches the contract addendum.
- Ask whether real estate commission is being paid separately, since it doesn't count against the 6%.
Seller concessions are a normal, HUD-sanctioned negotiating tool — the cap exists to keep the sales price and the appraised value honest, not to discourage buyers from asking for help. Structure the request correctly and it works in your favor from day one of underwriting through your loan process timeline.