Does the Seller Have to Pay Closing Costs on an FHA Loan?

Getting an FHA loan to buy a house can be a great option, especially for first-time homebuyers. FHA loans require just a 3.5% down payment and have more flexible credit requirements than conventional loans. But like any mortgage, FHA loans come with closing costs that the buyer has to pay at closing. What about the seller – do they have to cover any closing costs when the buyer uses FHA financing?

The short answer is: sometimes.

It’s up to you as the buyer to pay certain closing costs when you get an FHA mortgage. But the seller may also pay some closing costs, either because they want to or because the law says they have to. It’s important to know how FHA loan closing costs are split and when the seller pays some of them.

Overview of FHA Closing Costs

When you close on an FHA mortgage, you’ll need to pay these main closing costs:

• Upfront Mortgage Insurance Premium (MIP) – An upfront fee equal to 1.75% of the loan amount, which goes toward the FHA insurance fund.

• Lender Fees – May include origination fee, underwriting fee, document prep fee, etc. Varies by lender.

• Third-Party Fees: These are the fees for things like the appraisal, credit check, title work, recording fees, and so on.

• Prepaid Expenses – Includes prorated property taxes homeowner’s insurance premium, and interest.

Getting an FHA loan for $200,000 can cost you around $4,500, which includes the upfront MIP, the origination fee ($2,000), third-party fees ($1,000), and pre-paid expenses ($2,500). That means your total closing costs could be $10,000, which is 5% of the loan amount.

As the buyer, you’re responsible for these FHA closing costs. But in some cases, the seller may pay some of them for you.

When Sellers Pay FHA Closing Costs

The seller isn’t required to pay any of the buyer’s closing costs on an FHA loan, unlike VA loans that require the seller to pay the VA funding fee. But FHA does allow sellers to pay up to 6% of the purchase price toward the buyer’s FHA closing costs.

Here are two main ways a seller may cover FHA closing costs:

1. As a Negotiation Concession

When you make an offer on a home, you can negotiate with the seller to pay a portion of your closing costs. This is very common with FHA loans since the upfront MIP and other costs can be high for buyers.

For example, on a $200,000 home, you could ask the seller to credit you 6% of the purchase price ($12,000) toward closing costs. This incentive for the buyer may help get your offer accepted.

It’s a win-win – you get help with the big closing costs, while the seller is able to sell for full price. Just remember the seller isn’t obligated to accept this concession if they get multiple offers.

2. To Pay Non-Allowable Fees

There are some FHA closing costs that the buyer can’t be charged for. Either the seller or the lender has to pay these “non-allowable fees.” They include:

• Mortgage broker fees (if there is a broker)

• Tax service fees to establish the escrow account

While lenders will usually pay non-allowable fees so they can close the loan, a seller may need to pay them if the lender won’t. This is less common, but it can happen.

Outside of those two scenarios, an FHA seller isn’t responsible for any other buyer closing costs. But if you’re having trouble with the upfront costs, it never hurts to ask!

Strategies to Reduce FHA Closing Costs

If your seller won’t pay closing costs, here are some options to lower your out-of-pocket costs with an FHA loan:

• Shop around – Compare fees between lenders to find the best deal.

• Finance the upfront MIP – Add this cost to your loan balance to avoid paying upfront.

• Seek down payment assistance – Check state/local programs that provide grants or loans.

• Get a gift – Family can gift you funds for closing costs within FHA limits.

• Earn seller credits – Make repairs or concessions to earn credits from the seller at closing.

While closing costs are always part of the homebuying process, it’s possible on an FHA loan that the seller will pay some of them for you. This help can make an FHA mortgage more affordable, especially when paired with other cost-saving strategies.

Frequently Asked Questions

Can the seller pay my down payment on an FHA loan?

No, the down payment must come from your own funds as the buyer. But the seller can pay other closing costs on your behalf.

What if the seller already agreed to pay closing costs for another buyer?

Even if the seller already agreed to pay closing costs for another buyer, they could still offer to pay yours too. But it would involve the seller bringing more money to closing.

Do I have to accept the seller’s offer to pay closing costs?

No, it’s optional. Some buyers want to pay their own closing costs even if the seller offers. You can’t be forced to accept the seller’s concession.

How do I ask the seller to pay my FHA closing costs?

When you submit an offer, include a request for the seller to pay a certain amount or percentage toward allowable closing costs. Explain how it will help you buy the home.

Can the seller just give me a discount instead?

No, the seller can’t simply lower the sale price to avoid paying closing costs. Any concessions must be stated separately from the purchase price.

The Bottom Line

While required to pay your own FHA down payment, you may get some help with closing costs from the seller. This can make an FHA mortgage more affordable. But even if no seller concessions are made, you still have options to reduce your out-of-pocket costs like shopping lenders, gift funds, and down payment assistance. With the right approach, FHA financing can be within reach.