Everyone Tells First Time FHA Buyers Sellers Can Only Cover a Small Amount. Here's the Actual Rule.
Everyone tells first time FHA buyers that sellers can only kick in a token amount toward closing costs. That is not the actual rule, and believing it can cost a buyer real money at the closing table.
A Situation That Comes Up Often
A situation that comes up often involves a first time FHA buyer who is short on cash for closing costs and assumes the seller will barely budge on helping. Picture a buyer named Christy, a first time FHA buyer near Ridgeland, South Carolina. She was tight on funds for closing and had been told, like a lot of buyers are told, that sellers only ever cover a small amount of those costs. So when she and her agent sat down to write the offer, she almost asked for far less than she was actually entitled to.
The Actual FHA Guideline
Here is the guideline, word for word, straight from HUD 4000.1: "Interested Parties may contribute up to 6 percent of the sales price toward the Borrower's origination fees, other closing costs, prepaid items, and Discount Points."
Read that again. Six percent of the sales price. Not a flat few hundred dollars. Not whatever amount feels reasonable to ask for. Six percent of the sales price, usable toward origination fees, other closing costs, prepaid items, and discount points. For most purchase prices, that is a significant amount of money, and it is explicitly allowed by FHA guidelines.
Why Nobody Says This Number Out Loud
The reason so many first time buyers never hear the real number is simple: nobody says it during negotiations. Buyers assume sellers will push back hard on any request, so they ask for less upfront, sometimes far less than guidelines allow. Agents who are not working FHA transactions every day may not think to bring it up either. The result is buyers leaving money on the table before they even get to the closing table.
What To Actually Do
If you are a first time FHA buyer writing an offer, here is the exact language to use: "Seller to contribute up to 6 percent of the sales price toward buyer's closing costs, prepaid items, and discount points, per FHA guidelines." Tying the request to a percentage of sales price, rather than a flat dollar guess, keeps your offer aligned with what FHA actually permits.
Before you submit that offer, get a written seller concession calculation from your loan officer. This confirms the exact dollar figure based on your actual sales price and makes sure the number in your offer is accurate and defensible, not a rough guess that could create problems later with underwriting.
The Bottom Line
Christy's situation is a common one. The fix is not complicated: know the real guideline, put the right percentage language in your offer, and confirm the number in writing before you submit. That is the difference between guessing at seller help and actually using what FHA allows.
If you are a first time FHA buyer in the Charleston area trying to figure out what to ask for, I am Jason Sharon with Home Loans Inc, and I find the path through guidelines like this one every day. Call 843-LOW-RATE and let's look at your numbers before you write your offer.
Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.
Learn more about this loan program: Everyone Tells First Time FHA Buyers Sellers Can Only Cover a Small Amount. Here's the Actual Rule.
