Yes — a home seller can pay some of a buyer’s closing costs when an FHA loan is used for a Washington home purchase, as long as the contribution stays within FHA rules. In practice, these seller concessions are negotiated as part of the purchase agreement and can help reduce the buyer’s cash to close, but they are not automatic or guaranteed.
One advantage of using an FHA-backed mortgage loan is the fact that sellers can pay some or all of the buyer’s closing costs. Here’s what you should know about Washington State FHA loans, closing costs, and contributions from “interested parties.”
In Washington, and nationwide, sellers are allowed to pay a portion of the buyer’s closing costs when an FHA loan is used. We’ll get back to the rules and requirements for these “seller concessions” in a moment. But first, a couple of definitions.
An FHA loan is one that is insured through the Federal Housing Administration, part of HUD. This insurance protects lenders from losses that might result from borrower default. For borrowers, the program offers relatively low down payment and flexible qualification criteria.
When borrowers take out a mortgage loan to buy a house, they encounter a variety of charges. Some of these come from the lender, while others come third parties like home appraisers, government entities, title companies, etc. Collectively, these fees and charges are referred to as closing costs. Most mortgages come with closing costs, and that applies to FHA loans as well.
The FHA loan program allows for Washington home buyers to have some of their closing costs paid by the person(s) selling the home. This is often referred to as a seller “concession” or contribution.
According to HUD Handbook 4000.1, home buyers in Washington who use an FHA loan to buy a house can receive seller concessions toward their closing costs. The person selling the home is allowed to pay up to 6% of the sales price amount toward the buyer’s closing costs.
“Standard Interested Parties may contribute up to 6 percent of the sales price toward the Borrower’s origination fees, other closing costs and discount points.”
In this context, the term “interested party” refers to sellers, real estate agents, developers, home builders, or other parties with an interest in the transaction. These people can pay some or all of the buyer’s FHA loan closing costs, generally up to 6% of the sale price.
For most buyers, the more practical question is not just the 6% maximum. It is what that contribution can actually be used for at closing. Under FHA rules, interested-party contributions can go toward the borrower’s origination fees, other closing costs, and discount points. Depending on the transaction, that can also help with certain prepaid items collected at closing.
But seller concessions are not the same as cash back to the buyer. They must be tied to actual eligible costs in the transaction. If the negotiated concession amount ends up being more than the buyer’s allowable closing costs and prepaid items, the unused portion does not simply get handed to the buyer. It generally has to be reduced or applied only where the FHA rules and the final closing figures allow. That is why Washington buyers should review their loan estimate and closing disclosure carefully and make sure any seller contribution is structured to reduce real cash-to-close expenses.
Down payments and closing costs are two of the financial hurdles home buyers in Washington must overcome on their path to homeownership. (At least, for those buyers who use mortgage loans to finance their purchases.) But there are ways to overcome these perceived hurdles.
Home buyers in Washington State who use FHA or conventional loans can often obtain gift money from family and friends, to help cover the down-payment expense. We’ve written about this in the past. And then there are the seller concessions toward closing costs, which are discussed above.
The point is, the path to ownership is not always as steep as home buyers believe it to be. There’s a lot of flexibility within today’s mortgage industry. There are many different loan programs, and they all have unique features and benefits. That’s why it’s so important to speak with a knowledgeable loan officer about your financing options.
What’s the best loan option for you? What might you do to reduce your upfront expense when buying and financing a home? These are just two of the important questions we can help you answer.
Sammamish Mortgage can help. We serve clients across Washington, Idaho, Colorado, Oregon, and California. Since 1992, we’ve been providing several mortgage programs and products with flexible qualification criteria to borrowers across the Pacific Northwest. Visit our website to get an instant rate quote or to use our online mortgage calculator. Or, reach out to us if you are ready to get pre-approved for a mortgage.
Yes. In Washington, and nationwide, a home seller can pay some of the buyer’s closing costs when an FHA loan is used, as long as the contribution stays within FHA rules and is negotiated in the purchase agreement.
Under FHA rules, standard interested parties may contribute up to 6% of the sales price toward the borrower’s origination fees, other closing costs, and discount points.
The buyer usually has closing costs on an FHA loan, but the seller or another interested party may pay some or all of those costs if the contribution is allowed under FHA rules and agreed to in the transaction.
No. Seller concessions are not automatic or required. They are negotiated between the buyer and seller as part of the purchase agreement.
FHA seller concessions can go toward the borrower’s origination fees, other closing costs, and discount points. Depending on the transaction, they can also help with certain prepaid items collected at closing.
This depends on the specific cost and loan structure, but seller concessions are commonly used to reduce the buyer’s cash to close rather than simply adding costs to the loan. Buyers should review their loan estimate and closing disclosure to see how their costs are being handled.
No. Seller concessions are meant to cover eligible closing costs and related charges. They are not the same as down payment funds and are not cash back to the buyer.
Yes, a seller can pay some or even all of the buyer’s FHA closing costs if the total contribution stays within FHA limits and does not exceed the buyer’s actual allowable closing costs and prepaid items.
The extra amount does not go to the buyer as cash. If the negotiated concession is higher than the allowable closing costs and prepaid items, the unused portion generally must be reduced or applied only where FHA rules and the final closing figures allow.
Yes. Washington home buyers using FHA or conventional financing can often use gift money from family or friends for eligible upfront costs, while also negotiating seller concessions to reduce closing-cost expenses.
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