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FHA loans · HUD Handbook 4000.1FHA seller concessions: the 6% limit and what counts as an inducement

Under HUD Handbook 4000.1, interested parties – sellers, real estate agents, builders, developers, lenders, third-party originators and others with an interest in the deal – may together contribute up to 6% of the sales price toward the borrower's origination fees, other closing costs (including items paid outside closing), prepaid items and discount points. The 6% also covers interested-party payments for interest rate buydowns, mortgage interest on fixed-rate loans, mortgage payment protection insurance and the upfront mortgage insurance premium. Contributions above 6%, or above the actual costs, are inducements to purchase, and so are decorating or repair allowances, excess rent credits, moving costs, paying off consumer debt, personal property and paying the commission on the buyer's current home. Inducements reduce the price dollar for dollar before the loan-to-value is applied. Contributions can never count toward the buyer's 3.5% minimum required investment. Agent commissions the seller customarily pays are not interested party contributions.

The 6% limit (HUD 4000.1)

  1. Who

    Sellers, real estate agents, builders, developers, lenders, TPOs and other interested parties – combined.

  2. What it can pay

    Origination fees, other closing costs (including POC), prepaid items, discount points.

  3. Also inside the 6%

    Rate buydowns and payment supplements, mortgage interest on fixed-rate loans, payment protection insurance, upfront MIP.

  4. Not inside

    Seller-paid agent commissions by local custom; lender premium pricing credits when the lender is not the seller, agent, builder or developer.

  5. Never

    The buyer's minimum required investment of at least 3.5%.

Inducements – these lower the price used for the loan

  • Contributions over 6%, or over the actual closing costs.
  • Decorating and repair allowances.
  • Excess rent credit and moving costs.
  • Paying off the buyer's consumer debt, or personal property thrown in.
  • Paying the sales commission on the buyer's current home.

What the TC checks

  • The seller credit in the contract is no more than 6% of the price and no more than the buyer's actual costs.
  • A repair credit negotiated after inspection – ask the lender how it will be treated before anyone signs.
  • The contributions appear on the contract (or other binding document), the HUD-92900-LT and the Closing Disclosure.

Questions agents and buyers ask

How much can a seller pay toward closing costs on an FHA loan?

Interested parties together may contribute up to 6% of the sales price toward origination fees, closing costs, prepaids and discount points (HUD Handbook 4000.1).

Can the seller give a repair credit on an FHA loan?

A repair allowance is listed as an inducement to purchase, which reduces the price used to figure the loan dollar for dollar – ask the lender how to structure repairs.

Can seller concessions cover the FHA down payment?

No. Interested party contributions may not be used for the borrower's minimum required investment of at least 3.5%.

Related guides

Keep the signed contract, every amendment and the Closing Disclosure on one deal in ClosingCode – the seller credit can be checked against the 6% limit before closing.

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Source: HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook, II.A.4 Interested Party Contributions and Inducements to Purchase (TOTAL), and Minimum Required Investment, last revised August 12, 2026 (hud.gov, read October 25, 2026).

General information about FHA-insured loans, not legal or financial advice. The lender applies HUD's current handbook and mortgagee letters. ClosingCode is software; it is not a lender or law firm. This guide is not a substitute for the advice or services of an attorney.