FHA Guideline On Seller Paid Closing Costs

Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

These days many of the FHA Borrowers that I work with require Sellers to pay most of their Closing Costs, so I need to be on top of what the FHA Guideline On Seller Paid Closing Costs are. The FHA Guideline On Seller Paid Closing Costs are very specific, but could cause some last minute surprises if not explained correctly, and understood by the Borrower.

FHA does not require that a Buyer put any of his or her own money towards Downpayment and/or Closing Cost.  All of the money for Downpayment and Closing Costs can come from an acceptable gift source such as a:

  • Family member
  • Employer
  • Non Profit
  • State Bonded Program like CHFA in Connecticut

FHA will not allow a Seller to contribute ANY money towards Downpayment, but they will allow the Seller to contribute up to 6% of the Sales Price towards the Buyers Closing Costs.  This sounds good and it is, but I rarely see the Seller actually pay the Buyers Closing Costs.  In reality what happens is the Seller raises the agreed upon Selling Price by the amount of the Closing Costs that they will be contributing.

This means that even though the Buyer can receive up to 6% towards Closing Costs, they should not request any more than the actual amount of Closing Costs that the Seller will be allowed to pay at the Closing.  If the Buyer asks for more money than the Seller will be allowed to contribute towards Closing Cost, the Seller gets to keep the difference, and the Buyer ends up paying more for the house than they needed to.  This means that before a Buyer or their Realtor asks for Seller Paid Closing Costs, they need to talk to their Loan Originator, and have him or her give them a very close estimate of what the Total Closing Cost will actually be.

In figuring the Estimated Closing Costs, the Loan Originator will need to take into account the Closing Cost that FHA will not allow the Seller to pay, and subtract them from the Total Closing Cost Estimate.  The Closing Costs the will need to be deducted from the Total Closing Costs are any Closing Costs that are paid before the Closing.  Those will include any fees paid to the Lender or other vendors prior to the Closing.

Possible items that maybe required to be paid before of the Closing are:

  • Appraisal Fee
  • Application Fee
  • Condo Questionnaire
  • Homeowners Insurance

There are other fees that could possibly be required to be paid before the Closing, but these are the most common ones.  However, even though I have included Homeowners Insurance in the list above, there is away to include them into the costs that the Seller will contribute at the Closing.

All Lenders will require that the Borrower obtain an insurance binder before the Closing, but they do not require that the premium be paid prior to the Closing as long as a check will be sent to the insurance company at the time of the Closing.  However, some insurance companies will not issue the insurance binder without a payment, so what I advise my Borrowers to do in that case is to just pay them one month premium, and the other 11 months paid at the Closing.  That way they can maximize the funds that that they can receive from the Seller, and reduce their out of pocket cost.

I have heard of angry Buyers that did not find out until the Closing that they could not be reimbursed for the items that they paid before the Closing.  That is not the type of surprise that anyone wants at the last minute.  I make sure that my Borrowers understand this when I am Pre-Qualifying them, when I am doing the Mortgage Application with them, and after the loan is approved and they are now going to shop for Homeowners Insurance.  I want them to take advantage of ALL the funds that the Seller has agreed to contribute, and I don't want an agree phone call from my Borrowers after the Closing.

This is something that can not be explained enough, and should be reinforced at every appropriate opportunity.  FHA Guideline On Seller Paid Closing Costs are very clear, and need to be followed, because FHA does not provide any flexibility when it comes to this issue.



Who To Call For Your Mortgage Needs In Connecticut:

George Souto NMLS# 65149 is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308  gsouto@mccuemortgage.com, or visit my McCue Mortgage Homepage

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Old Saybrook, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or souto@snet.net


Re-Blogged 17 times:

Re-Blogged By Re-Blogged At
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Andrea Swiedler
Berkshire Hathaway HomeServices New England Properties - New Milford, CT
Realtor, Southern Litchfield County CT

George, this is a great explanation of closing costs, for any buyer and any mortgage. At the end of the day, they are paying for them, in the mortgage amount.

Expect a reblog of this one!

Aug 06, 2012 10:25 AM #1
Ed Silva
RE/MAX Professionals, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

George, I have clients that insist that the seller not only take a lower value, but actually pay the closing costs out of their proceeds, and not as a rebate with the total in the mortgage. This is a great post and a fully detailed explanation

Aug 06, 2012 11:10 AM #2
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX


With an educable buyers and a friendly mortgage broker, the broker can collect part of the sellers contribution and pay the appraisal fee and condo questionnaire, there is no need for an application fee. 

Home owner's insurance is a different matter.

I've often gone on the line for the appraisal and had the seller or his listing agent front the inspection fee.

With the old "community home buyer" program I also provided the down payment and still made a 1/4 point more than normal. For the record as of 3 years ago none of my CHB loans ever went bad.

There is always more than one legeal way.


Aug 06, 2012 11:35 AM #3
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Andrea, I always explain that to my Borrowers to make sure they understand what is going to happen

Ed thank you I try.

Bill under the new FHA Guidelines, if something is paid before the closing it can not be paid by the Seller, Broker, or Lender Credit.  Fannie Mae still allows for it, but not FHA.  But neither Fannie Mae, Freddie Mac, or FHA will allow the Seller, Broker, or Lender to contribute to the Downpayment.  There is no exception to those rules, and Lenders whe did not abide by them are learn this the hard way, by having to buy the loans back.

Aug 06, 2012 11:56 AM #4
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX


So don't pay it in advance.

I never did.

As you know, I was never an FHA single family broker or banker.

We haven't been able to contribut to the down payment for a long time.


Aug 06, 2012 12:03 PM #5
Nick T Pappas
Assoc. Broker/Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, @HomesBirmingham & Providence Property Mgmnt, LLC Hun... - Huntsville, AL
Madison & Huntsville Alabama Real Estate Resource
George, I ALWAYS get with the lender regarding closing costs, I'm usually under a hundred dollars off, but I definitely check with you guys.
Aug 06, 2012 12:16 PM #6
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Bill that is the point I was trying to make.  To not pay anything that does not need to be paid before the Closing like the appraisal fee, and any other Lender fees.  And whatever will be paid before the Closing, not to include that amount in the Seller contribution, because it will not be allowed on the HUD-1

Aug 06, 2012 12:17 PM #7
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Nick I am usually very Close also.  We need to protect our Buyers/Borrowers.

Aug 06, 2012 12:18 PM #8
Gail Robinson
William Raveis Real Estate - Southport, CT
CRS, GRI, e-PRO Fairfield County, CT

George - As always, thank you for keeping me up to date on mortgage matters.  You are the AR expert I rely upon.

Aug 06, 2012 02:14 PM #9
Ginny Gorman
RI Real Estate Services ~ 401-529-7849~ RI Waterfront Real Estate - North Kingstown, RI
Homes for Sale in North Kingstown RI and beyond

George, you are a great CT go to mortgage guy to recommend...you make the explanation of closing costs very clear to a buyer!

Aug 06, 2012 10:18 PM #10
Michael J. Perry
KW Elite - Lancaster, PA
Lancaster, PA Relo Specialist

In our area it seems we can only use about 4.5 of the 6% maximum amount that is allowed.

Aug 06, 2012 10:23 PM #11
Amanda Christiansen
Christiansen Group Realty (260)704-0843 - Fort Wayne, IN
Christiansen Group Realty

Great information here George.  In my area, 90% of the time the sellers pay the buyer's closing costs.  0% of the time have we raised the purchase price to cover the difference.  Interesting that it works that way in your area.  

Aug 06, 2012 10:26 PM #12
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

George, good break down of how the FHA handles the closing costs a seller can pay. Something buyers need to be aware of when purchasing FHA.

Aug 06, 2012 11:02 PM #13
Larry Bettag
Larry Bettag - Cherry Creek Mortgage - Saint Charles, IL
Regional Vice-President

Great words....I know what is needed, but I don't think that  lot of my loan officers do.  I'll share this link as a good overview.  Thanks

Aug 06, 2012 11:11 PM #14
Rob Spinosa
Guaranteed Rate, Marin County, CA - San Anselmo, CA
Vice President of Mortgage Lending, Marin County

And remember, the credit is ALWAYS for closing costs and NEVER for repairs or improvements.  I still can't believe how many times that comes up on contracts...

Aug 06, 2012 11:47 PM #15
Gary Frimann
Eagle Ridge Realty / Signature Homes & Estates - Gilroy, CA
REALTOR and Broker

Actually closing costs are codified under RESPA, and I am pretty sure FHA mirrors those.

Aug 07, 2012 12:27 AM #16
Barbara Altieri
RealtyQuest/Kinard Realty Group, Fairfield and New Haven County CT Real Estate - Shelton, CT
REALTOR-Fairfield County CT Homes/Condos For Sale

George -- EXCELLENT!  I have been through this a number of times and I always do what you said.....go to the lender to get an estimate of closing costs so we don't go over.  A successful FHA deal depends on who is handling it and how the buyers are educated in the process. You do a fantastic job of that!

Aug 07, 2012 12:29 AM #17
Louise Thaxton NMLS 69996
Fairway Independent Mortgage Corp Louisiana NMLS#2289 Equal Housing Lender - Leesville, LA
Military Mtg Specialist - 866-960-9115 VA FHA USDA

GREAT informational post!  You did a great job of explaining it - love it!

Aug 07, 2012 12:48 AM #18
Sandy Acevedo
951-290-8588 - Chino Hills, CA
RE/MAX Masters, Inland Empire Homes for Sale

Hi George, this a great post, explained in a simple and straight forward manner. Well done!

Aug 07, 2012 03:28 AM #19
Neal Bloom
eXp Realty - Weston, FL
Realtor CRS-Weston FL Real Estate

Hi George,

I never liked that formula. Why can't they just let the sellers pay the actual instead of jacking up the price to a sales prices that really isn't the real number? Also I've seen in the past when the price is jacked up..it effects the market value on the appraisal. What if you go to all that trouble of going into contract and it doesn't appraise? I think it would be better if the seller actually had to pay the required fees...even though I'm generally on the listing side and do not like that FHA requires the seller to pay the buyers costs...some buyers and sellers find it confusing and it can effect the seller by having the deal killed over the adjusted price. Also on paper..the actual price on the contract will be whats reported ..when in fact...its false and should be the net price instead of the gross. Just my humble opinion.:)

Aug 07, 2012 05:27 AM #20
Kim Boekholder Utah Real Estate
Results Real Estate 801.580.5624 - Draper, UT
Broker, Results Real Estate
most of our sellers up the price to cover the closing cost. with that being the norm here I always have an idea going into making the offer what the lender is going to charge and what the buyer is going to need to cover their cost. I have never heard of a seller helping with closing cost until I moved to Utah but it is the thing to ask for here
Aug 07, 2012 08:08 AM #21
Kim Boekholder Utah Real Estate
Results Real Estate 801.580.5624 - Draper, UT
Broker, Results Real Estate
its normal for seller to cover closing cost here but I always make sure I know what the cost are estimated to be before I make the offer. I want to make sure if the seller wants to wrap the cost on top I dont let it raise past the monies that will actually be used. you're right many buyers do not understand or know this and I imagine they would be very frustrated to find out the seller keeps the difference. great reminder to us all
Aug 07, 2012 08:11 AM #22
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Thank you everyone for commenting, but I need to clarify something that some have misunderstood in the blog.  When I stated that the Sellers will generally add the Seller contributions to the cost of the property, I did not mean to imply that it was added to the asking price.  The way it generally happens here is that lets say a house is on the market for $200,000 and the Buyer negotiate down to $190,000, but then ask for $6,000 in Closing Costs.  If the Sellers agree they will then usually counter with a $196,000 selling price.  The price is still lower then or equal to the asking price, but rarely above the original asking price.  To do so would run the risk of the property not appraising, and that would not do anyone any good.  I hope that my further explanation helps to make what I stated in the blog a little more clear.

Aug 07, 2012 08:43 AM #23
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

I applaud you for providing such a well-written, educational post, George.  It's certainly of value to educate, but also to lay-out what options exist for transacting a home and completing financing.  For clients and referral partners alike.  The more educated we all are ... the better we can help get business done ...


Aug 07, 2012 09:42 AM #24
Susanna Haynie
CO-RE Group, LLC -Real estate sales and services - Colorado Springs, CO
Colorado Springs Realtor GRI CNE MCNE ePro MRP

reblogged, google +1'd, tweeted. Great refresher! Thanks.

Aug 07, 2012 10:05 AM #25
Brenda Mullen
RE/MAX Access - Schertz, TX
Your San Antonio TX Real Estate Agent!!

Wonderful explanation George!  It is so important to know exactly what the FHA buyer is going to need for closing costs rather than just put 6% of the sales price down on the contract.  Getting this info from the lender is so important and it's wonderful when you have a lender that will sit down and explain everything to the buyer.

Aug 07, 2012 10:53 AM #26
Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

George, love the creative work around to paying the homeowner's insurance. Never thought of doing it that way. And the explanation is crystal clear - great post!


Aug 07, 2012 11:53 AM #27
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

George - It's important to know the numbers up front so that a buyer understands what they are getting into.

Aug 07, 2012 03:46 PM #28
Joe Petrowsky
Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT
Your Mortgage Consultant for Life

Your clients are fortunate, that you know your information as well as you do. There are many in this business that say they do, but end up not doing a good job for their customers.

Great post George!

Aug 07, 2012 08:06 PM #29
Keith Lawrence
RE/MAX Properties - Mahwah, NJ
ABR, CDPE, SFR, 203K Specialist

Great explainatin.  The FHA buyers are coming out to purchase homes due to the low interest rate.  I am doing one now with a locked in rate of 3.75%.  Most short sale buyers are FHA.

Aug 07, 2012 10:50 PM #30
Ron Aguilar
Continental Mortgage - Saint George, UT
Mortgage & Real Estate Advisor since 1995

The 4155's is needed as a loan office and getting all the FHA updates from your underwriter and of course some caution at all times

Aug 07, 2012 10:51 PM #31
Woody Edwards
First Choice Realty, Inc - Chesterfield, VA
A Realtor® Who Answers His Phone!


Very good explanation of the whole picture.  I wish more lenders would explain this in better detail early on in the transaction.

Aug 07, 2012 11:05 PM #32
Ricki Eichler McCallum
CastNet Realty - Corpus Christi, TX
Broker,GRI,ABR, - Your Coastal Bend Home Source

Hi George,  Good post!  We dont want any angry buyers or sellers at closing.  Explaining everything upfront and making it work for everyone is our most important job.

Aug 07, 2012 11:10 PM #33
Tatyana Makarov
Coldwell Banker Residential Brokerage - South Windsor, CT
Your Greater Hartford Area Realtor

Hello George,

This is a great post. I have to explain a lot to  my FHA buyers who it works and who much they have to pay.

Thanks for sharing.

Aug 07, 2012 11:15 PM #34
Linda Gurtel, CRS
Coldwell Banker Residential Brokerage - Glastonbury, CT

Thank you George, and to think you're right here in CT. Hope to meet up with you someday.

Aug 07, 2012 11:19 PM #35
Paul B. Forsberg
HG Real Estate Services - North Port, FL

Good Post George:

I just completed a deal with seller contribution of 6% PLUS.

The roof needed to be re-done and so did the hot water heater. (Insurance company agreed to a 30 day allowance on wrk being completed)

We got the seller to agree to pay for it at closing. Buyer brought estimates to the closing table in sellers name. Seller issued checks out of closing to roofer and plumber as per addendum on sales agreement.

We got the deal done becasue seller was sick and tired of getting low ball offers becuase of the work needed to be done. We came in wth a full price offer (which satisfied his ego) and get hime to pay for the work and closing costs.

FHA works really well - ESPECIALLY if you can talk to and reason with the underwriter.


Aug 07, 2012 11:21 PM #36
Cheryl Dolan, GRI
Berkshire Hathaway HomeServices Florida Network Realty - Ponte Vedra Beach, FL
Committed to You. Your Home. Your Future.

Thanks George for a very thorough and specific explanation.  We are seeing more and more FHA buyers in our market so this is very timely.  Best to set buyer expectations before the offer is made and accepted!

Aug 07, 2012 11:24 PM #37
Jana Holmstrup
Jana Holmstrup - VP Ops - Kings Mortgage Services, Inc. - Visalia, CA

Okay, I've been on vacation the past two weeks... what "new" guidelines?  If the Buyer pays the Appraisal upfront, we will allow the Seller to pay at close and the Buyer is refunded the fee.

Did I miss something??

Aug 07, 2012 11:32 PM #38
Alisa McKeel Willson
Appraisal Pros in Texas - Huntsville, TX
Certified Res. Appraiser

Good post...about those appraisal fees...Most appraisal orders are going through an AMC these days.  Please keep in mind that most of these appraisal management companies are collecting the fee up front before they will send an appraiser out to do the appraisal.  So it may be difficult to avoid paying an appraisal fee up front.

And in case you didn't know...even if the appraisal is paid up front the fee is not paid to the appraiser for at least 30 days sometimes 60 to 90...

Aug 07, 2012 11:40 PM #39
Mike & Eve Alexander
Buyers Broker of Florida - Orlando, FL
Exclusively Representing ONLY Orlando Home Buyers

As an Exclusive Buyers agent, I never want to leave "closing costs" on the table for the seller to benefit...and sometimes the buyer insists on using a mtg, person that does not crunch the numbers correctly.

...which is why I always write "seller to pay $xxx% for closing costs and/or any settlement charges"...which means any extra buyer expenses on the HUD can be paid by the seller and nothing is left on the table.

Eve in Orlando

Aug 07, 2012 11:43 PM #40
Richard and Jean Murphy
Harborview Properties - Portland, ME
(207) 712-4796

George, This is a conversation every lender should have with their clients/customers. Perhaps a list of any allowable seller-paid expenses would be in order. Thanks for the clear explanation.

Aug 07, 2012 11:45 PM #41
Nancy Middleton
Counselor Realty, Inc. - Excelsior, MN
Nancy Middleton, Counselor Realty, Minnetonka, MN

Great post, George. From reading many of the comments, it seems  it is very important to check out with your local experienced lender what the FHA rules and amounts are in your particular area or state.


Aug 07, 2012 11:48 PM #42
Robert & Leslie Lang
Weichert, REALTORS® - McKee Real Estate - Hawthorn Woods, IL

Sounds like you do a great job in explaining all the "ins and outs" to the buyer. Good job!

Aug 07, 2012 11:50 PM #43
Lisa Ackerson
Fathom Realty DFW - Keller, TX
CRS - Dallas Fort Worth Area Expert
Great post! I've had many a happy seller when they find out that the buyers lender won't allow them to pay the full amount of agreed-upon closing costs. I think a lot of buyer's agents don't understand that just asking for 6% isn't always in the best interest of their buyers.
Aug 07, 2012 11:53 PM #44
Roger Newton
Roger Newton Real Estate - North Plains, OR

If the lenders would also explain and meet closing dates, we could all be happy.  Just as the lender should tell the buyer/agent exactly how much they need to the seller to pay in closing costs, they should tell them how long it will take to close.  I very rarely see FHA loans close on time in Oregon.  I have seen lenders close them in less than 30 days, and I come across others that take 45 or more days.   The lenders that take longer have plenty of excuses.  The problem is that the buyer enters a contract with a seller to close by a certain day, and if that does not happen, then the deal is dead - obviously, it can come back to life with an addendum, but there is no obligation to execute an addendum.  My properties are REO, and the sellers typically charge a per-diem of $50-$100.  This could be $700 if a closing date is missed by a week.  This can throw a wrinkle in the closing. 

Aug 07, 2012 11:58 PM #45
Peggy Chirico
Prudential CT Realty - Manchester, CT
REALTOR® 860-748-8900, Hartford & Tolland County Real Estate

Buyers are in great hands with you as the lender, George! Excellent explanation!

Aug 08, 2012 12:03 AM #46
Dennis J. Zisa & Associates, Inc.
Dennis J. Zisa & Associates, Inc. - Camden, NJ
26 years in So. Jersey and the Greater Camden area

This is one of the best explanations on the topic of FHA allowable closing costs, that I've seen! The issue of the "seller concession", and what happens to the portion of it that is not used, or not allowable on the Hud-1, is often a large bone of contention at the Table.

This is an excellent post and I plan to re-blog.

Aug 08, 2012 12:08 AM #47
Pattie Zanders
Exit Bennett Realty - Capitol Heights, MD

Great, easy to understand explanation of FHA guidelines.

Aug 08, 2012 12:11 AM #48
Valerie Osterhoudt
Johnson Real Estate, Inc. - Cromwell, CT
ABR, Cromwell, CT Real Estate ~ 860.883.8889

George... I am so glad you explained this the way you did... direct, but clear and understandable for those that are new to purchasing a home.

Aug 08, 2012 12:14 AM #49
Debbe Perry
Real Living Carolina Property - Morganton, NC
828.439.3084 Morganton/Lake James NC

SUCH good information, and in a readable, understandable format - thanks so much! I'm going to re-blog and refer this to my buyers to reinforce what they've been told by me and by their lenders. Can't be emphasized enough!

Great post - thanks!

Aug 08, 2012 12:22 AM #50
Stu Dye
Residential Mortgage Services, Inc. (RMS) -- NMLS #1760 - Portland, ME
NMLS #441847


A good, detailed explanation, but not too much...  Well done!

-Stu Dye

Aug 08, 2012 12:24 AM #51
Wayne Thompson
Walden Mortgage Group - Lexington, KY

George you hit the nail on the head! So many lenders in our market don't understand this basic concept and their customers wind up leaving money in the sellers pocket. The agent negotiates as cheap a price as possible and then the buyers turn around and basically pay the seller what can amount to several hundred dollars more than the agreed on price. The lender should explain this to the customer. It makes them look go and agent look god and everyone has a happy customer.


Aug 08, 2012 12:34 AM #52
Jody Black
RE/MAX Legacy Realty - Oxford, MS

Great article. It's always great to keep up with the ever changing rules on closing costs. Thanks for posting. 

Jody Black


RE/MAX Legacy Realty

Aug 08, 2012 12:42 AM #53
Roger Watland
Roger T. Watland Associates - Brooklyn Park, MN

George, first off, nice overview.

Like Jana H, I must have missed the memo with respect to appraisal fees not being able to be

shown as a POC credit on a HUD 1 as a fee that can be covered by seller paid closing costs

as long as the borrower (or close friend, relative, etc by gift), in the end, contributes the minimun required investment per the FHA program.


Is there a specific mortgagee letter that you could share with us that clears this up?


My guess, is that if this is happening, it is a lender (investor) specific requirement & not technically a HUD/FHA requirement. That would account for varying experiences.  The 203K programs sometimes have had lender specific overlays that are more severe than HUD requirements, but I haven't really noted that kind of investor behavior with the 203B loans.

I certainly could be wrong, but a mortgagee letter citation could clear things up:)



Roger Watland

Aug 08, 2012 12:45 AM #54
Ellie Penaranda
239.776.5077 Downing-Frye Realty - Naples, FL
Naples Florida Real Estate - Waterfront & Beach Co

George, you did a wonderful job with the explanation.  Buyers do get confused so it is important to discuss all this before writing a contract.

Aug 08, 2012 12:58 AM #55
Stephen Turner
TriCorner Homes (TriCorner Realty) - York, PA

As a sales manager for Harrisburg PA's #1 homebuilder, I deal with this every single day. This is helpful information and it changes frequently. While 6% is the max, some buyers need more and we have found most banks interept the guidelines to allow us to pay 6% AND instread of splitting the transfer tax (in PA total of 2%. Typicaly buyer pays 1%, seller pays 1%) we pay the full tax. This essential has allowed us to then pay up to 7%.

Aug 08, 2012 12:59 AM #56
Leah D. Knoerlein
LT REALTY Brokerage Firm in Central MD - Perry Hall, MD
Broker - ABR, SFR, SRES, AHS

Don't forget the buyer still must have at least 3.5% of their own money, be it theirs, a gift, whatever, but coming from their side of the transaction invested. So be careful when you help the buyer negotiate a price, that you are asking for help with closing cost they can use from the seller.  If you get a contract signed with the seller paying $7000 of the buyer's closing cost, but when you subtract the buyer's 3.5% investment and there's only $6000 the seller can pay, you just gave the seller another $1000 for the house!  I always work this out with the buyer's loan officer when we write the offer to be sure we have it covered. 

Aug 08, 2012 12:59 AM #57

No disrespect to anyone out there, but as a loan originator, I constantly run into borrwers that have been misinformed by "loan officers of the past" as well as many realtors. With all the new guidelins we face today and the all the constant changes that are happenning in regards to the way Loan officers can and can not charge, what credit cna be used to help borrowers, etc.I see a lot of borrowersm, sellers, and agents(both Lo and Realtors) run into frustrations. I believe its best to find a reputable and personable Licensed Loan Originatoir and immediately have your borrower work directly with them so they know what to expect. Work with an Lo that respects your reputation as a Realtor and one that can make you shine. When they mention no cost, no fees, no appraisal deposits, etc...you should warn your borrwer to run like the wind.  Thew loan industry is pretty crazy these days, LO's should explain the mortgage process, Realtors should stick to what they are good at. Lets have a great August!

Aug 08, 2012 01:01 AM #58
Mitch Muller - Charlotte NC Real Estate
ProStead Realty Charlotte, NC CRS CDPE mitch@prostead.com - Charlotte, NC
Certified Residential Specialist

George, What a great breakdown and explanation on these costs. Thanks for the post!

Aug 08, 2012 01:06 AM #59
Edie Czerniak
RE/MAX Realty Team - Cape Coral, FL
My Only Purpose is to Deliver Successful Results

You did an awesome job of explaining FHA.  I am going to print out to show buyers.

Aug 08, 2012 01:16 AM #60
Marvin Beninson
Keller Williams Realty - Danbury, CT
Grtr Danbury/Ridgefield, CT + Grtr Orlando. FL.

I have had the misfortune of running into this situation before.  My buyers were told the amount that the sellers could contribute only to find out that some were not allowed and the sellers ended up getting paid more than agreed.  The lesson was well learned and it hasn't happened again.  Has anyone had any luck with 203k either streamlined or not?

Aug 08, 2012 01:37 AM #61
Lucas Taylor
Keller Williams Miami Beach - Miami Beach, FL
Thank you for the great education.  I learned so much from your post.
Aug 08, 2012 01:40 AM #62
Lynda White
Bluegrass Homes & Farms Realty, Agent Know How - Louisville, KY
Admin. Mgr., Keller Williams Realty

George I am going to real estate school and we talked about financing a little last night. I am actually thinking of taking a real estate financing course in addition because I want to know all the options available for clients.

Aug 08, 2012 01:54 AM #63
Keller Williams Realty San Diego Central Coastal - California - San Diego, CA
La Jolla San Diego Real Estate
George,  All the lenders should explain FHA Guideline's on Seller paid closing costs to their borrowers like you did.
Simple breakdown and easy to understand.
Thank you for sharing ..... I am going to reblog this!
Jaz Cook
Aug 08, 2012 02:00 AM #64
Gary L. Waters, Broker Owner, Waters Realty of Brevard, LLC
Waters Realty of Brevard, LLC - Rockledge, FL
... a small office, delivering big service!

Having a mortgage expert is key. There are a lot of talking heads providing bad info out there. Thanks for this post!

Aug 08, 2012 02:06 AM #65
Bob Miller
Keller Williams Cornerstone Realty - Ocala, FL
The Ocala Dream Team

Hi George, excellent summary and outline for FHA.  Used that program to give my daughter's downpayment.

Aug 08, 2012 02:10 AM #66
Sean Williams
AcklesWilliams of Semonin Realtors - Louisville, KY
Your Louisville Realtor

Great informative blog. I work alot with FHA buyers and knowing what encompasses FHA financing is always great knowledge when working with these buyers. Typically closing costs are the biggest hurdle for 1st time buyers/low down payment buyers so it becomes a game of price vs. closing costs for the buyer.

Aug 08, 2012 02:14 AM #67
Arlene Garcia Hanner
SoCalAgency.com / Arlene Garcia Hanner, Broker - Downey, CA

I heartily agree that having knowledgable lenders on your side reaps dividends for you and your buyer in maximizing your buyer's purchasing power.

Along with Jana H and Roger W, I would like to know what mortgagee letter you are referring to that no longer allows a buyer to be reimbursed for a pre-paid closing cost, such as appraisal. 

As a real estate agent, I have seen the closing cost credit to buyer reimburse appraisal and pre-paid buyer inspection fees up to a certain amount at closing on FHA transactions.  This experience included HUD transactions, if there is a seller that should be knowledgeable about what can be included and re-imbursable at closing, you would certainly think HUD is.

Aug 08, 2012 02:18 AM #68
Linda Just
Leibowitz Realty Group - Palm Beach Gardens, FL - Lake Worth, FL

Good update, George... Although, some agents still insist that closing credits to Buyer is re-imbursed for appraisal and inspections fees..up to a certain amount.



Aug 08, 2012 02:21 AM #69
Peter Gibaud Team
BHHS Homesale Realty - Chambersburg, PA
Master Marketers. Trusted Advisors.
Thanks for highlighting these important FHA rules. A caution about gift money: a client of ours, who is in escrow right now, was not allowed to count a gift toward his down payment because his credit score was below 640. We were not able to get an exception to this rule.
Aug 08, 2012 02:24 AM #70
John DL Arendsen
Crest Backyard Homes designer & builder of ADU''s

Phew! So much stuff to deal with nowadays. Whatever happened to the good ole hand shake?

Aug 08, 2012 02:30 AM #71
David Evans
HUD NLB Cumming GA

George, a refresher for FHA should be done once a year wth your lender. Over the last 4 years it has been fluid. And agents that structure correctly have smoother transactions. Thanks for this post

Aug 08, 2012 02:41 AM #72
Christine Hart Howlett
Painesville and Eastern Lake County - Painesville, OH
Keller Williams Greater Cleveland NE

Geaorge, thank you for the detailed explanation.  Just when I think I've memorized the rules they change, so I'm never sure of the correct information.  I've printed this and I will have a special place on my bulletin board.

Aug 08, 2012 02:53 AM #73
Gabrielle Nemes
RE/MAX Select R.E. - Auburn, WA
206.300.8421, S King & Pierce County RE Advocate

Hmmm, real estate and lending is sooo local. In my area, typically closing costs are NOT added back into the purchase price, even at a counteroffer stage. Sometimes, but not typically. And they are generally no more than 3%. HOA fees, insurance, appraisal, etc. ... all appear on the HUD and are paid at closing.

Aug 08, 2012 02:59 AM #74
Jim McCormack
Nashville Short Sale Specialist - Jim McCormack - Edge Advantage Realty, LLC - 615-784-EDGE (3343) - Murfreesboro, TN
Nashville Short Sale REALTOR - Stop Foreclosure

Great information on allowable FHA Seller Paid Closing Costs.  Thank you for taking your time to write this informative post.  I will refer to it in the future.

Aug 08, 2012 03:04 AM #75
Sharon Parisi
United Real Estate Dallas - Dallas, TX
Dallas Homes

George, thanks for this informative and educational update.

Aug 08, 2012 03:35 AM #76
Jerry Morse
The Morse Company - Janesville, WI

Thanks for the update.  Hope you are busy!                         


Aug 08, 2012 03:44 AM #77
Travis "the SOLD man" Parker; Associate Broker
Team Linda Simmons, Enterprise, AL 36330 - Enterprise, AL
email: Travis@theSOLDman.me / cell: 334-494-7846

THANK YOU!! I hope you don't mind if I copy this a a quick reference when I need it.


Aug 08, 2012 04:20 AM #78
Suzanne McLaughlin
Sabinske & Associates, Inc. (Albertville, St. Michael) - Saint Michael, MN
Sabinske & Associates, Realtor

What a well-written post.  And, this is great information to send to clients.  Thanks.

Aug 08, 2012 04:26 AM #79
Nan Jester
Exit Real Estate Gallery Jacksonville Beach, FL - Jacksonville Beach, FL
Realtor, Exit Real Estate Gallery

Thanks for the refresher.  It is always changing so let us all beware.

Aug 08, 2012 05:12 AM #80
Barbara S. Duncan
RE/MAX Advantage - Searcy, AR
GRI, e-PRO, Executive Broker, Searcy AR

Our lenders like to get paid for the appraisal up front so that if the deal falls through, they have the money.  I was not aware that this could not be reimbursed or credited on the final closing statement.  Guess I'm out of touch.

Aug 08, 2012 05:44 AM #81
John Pusa
Berkshire Hathaway Home Services Crest - Glendale, CA
Your All Time Realtor With Exceptional Service

George - Thanks for the list of detailed information about FHA guideline on seller paid closing costs.

Aug 08, 2012 06:19 AM #82
Arpad Racz
Altas Realty - San Jose, CA
408-252-0976 - www.aracz.com - Cupertino and Bay A

Thank you George!


All the best,





Aug 08, 2012 06:46 AM #83
Charles Walk

Great post... thanks for sharing.

Aug 08, 2012 08:20 AM #84
unknown unknown
Greer, AZ

Great information! Thanks!

Aug 08, 2012 11:06 AM #85
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Area Real Estate

Good post & good thought about the purchase price increase over & above the actual closing costs. You either know what you are doing or you don't during negotiations. Many buyers agents try to do their buyers a favor by getting as much as possible & in the end the buyer is not ahead. 

Aug 08, 2012 11:25 AM #86
Kate McQueen, REALTOR®
Realty ONE Group-Lone Star - Cypress, TX
Tailored service for your real estate needs!

All find and good if both parties are in agreement with stacking closing costs on contract price.....that is if the appraisal comes in with a value to support it.  

Aug 08, 2012 11:58 PM #87
Korby Matsen, R(B)
Hawaii Luxury Real Estate - Waikoloa, HI
REALTOR Broker - Kohala Coast, HI 808-557-5321

I'm not sure about other states, but in the paragraph of the Texas contract that refers to Seller paid expenses, the verbage used is "Buyer Expenses as allowed by the lender". So if the amount entered is higher than the allowed closing costs, the remaining amount can be used to pay other Buyer expenses, including the sale price of the house, which is a Buyer Expense. The Seller does not get to keep the remainder.

Aug 09, 2012 12:54 AM #88
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

Good post on a tough subject.  The big problem around here is if you raise the price to cover the credits it often does not appraise.

Aug 09, 2012 04:17 AM #89
Todd Johnson
Real Property Concepts - Temecula, CA
Broker to the Boomers!
Great refresher from the field. Thanks!
Aug 09, 2012 04:15 PM #90
Karen Deis
ApartmentToolKit.com - Minneapolis, MN
When In-house training is not enough!

Thanks for the explanation.  Even negotiating paying a portion of the buyer's closing costs (instead of lowering the price) will help--say $3,000 flat fee.

Aug 09, 2012 11:26 PM #91
Roger Newton
Roger Newton Real Estate - North Plains, OR

I received this yesterday printed on the lender approval leter with an offer on a listing of mine:


Notes:  Due to HERA/MDIA regulations instated no 7/30/09, closing dates will need to remain flexible.  The regulation mandates that certain waiting periods potentially be observed prior to ordering appraisals, issueing loan docs and closing loans.  Our predictibility and control of the causes of any of these potential waiting periods is quire limited, and thus, we are unable to ensure closing on any certain date, though we always strive to acheieve timely closings. Please ask me for a copy of the regulations if you would like to understand the specifics.


As an experienced loan officer, wouldn't you know how long and when the waiting periods are, so that you would know how long it should take to close a loan???  This seems like a cop out to me.

Aug 11, 2012 01:10 AM #92
Richard D. Ferris
AmcAppraisalsinc.com - Clermont, FL
Florida State Certified (FHA) Appraiser

Great point about leaving money on the table with this process!  How many buyers think they will get that full 6% off the price of the home on the back end, only to see it is actually 4% - and the seller gets a 2% bump!

The harder issue, is what happens when the appraisal value does not match the new sale price - now 6% higher than list price?  Who pays then?  

Aug 13, 2012 03:27 AM #93
Randy Elgin
Keller Williams, San Antonio, Helotes, Leon Valley - San Antonio, TX
Sells Affordable Homes for sale in the San Antonio

thanks for a very concise post about FHA loans. I've reblogged this. thank you.

Aug 17, 2012 03:54 AM #94
Joy Carter & Jeff Booker Brother and Sister Team
Keller Williams Parkland/Coral Springs Realty-GreatFloridaHomes Team - Coral Springs, FL
Trust Your Family's Move To Our Expertise!

Certainly worthy of a RE-BLOG.  Thanks for the details.  Joy

Aug 18, 2012 01:17 PM #95
Bahman Davani, CM at Texas Five Star Realty, Plano, TX (214) 457-7055
Texas Five Star Realty, Plano Texas - Frisco, TX
Homes for Sale in Plano, Frisco, Prosper, Allen TX

very usefull information. Thanks.

Jan 15, 2013 01:08 PM #96
Inna Ivchenko
Barcode Properties - Encino, CA
Realtor® • Green • GRI • HAFA • PSC Los Angeles CA

I've never had them pay 6%( would be very helpful to first time buyers), and appraiser is usually charging upfront these days( here the fee is 400-650$)

Aug 31, 2013 06:54 PM #97
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