How to Get Seller Concessions to Cover FHA Closing Costs

The Cash Problem Most First-Time Buyers Hit

You've saved for the down payment. Then you learn about closing costs, another 2% to 5% of the purchase price, and the math suddenly gets tight. On a $350,000 home that's $7,000 to $17,500 on top of your down payment, due at the table. For a lot of first-time buyers in Arizona and Texas, this is the moment homeownership starts to feel out of reach.

Here's the good news we share constantly: FHA lets the seller pay a big chunk of those closing costs for you. It's called a seller concession, sometimes a seller credit or seller-paid costs, and it's one of the most underused tools in the first-time buyer playbook. Used well, it can cut your cash-to-close by thousands.

What Seller Concessions Actually Are

A seller concession is money the seller agrees to contribute toward your closing costs, written right into the purchase contract. It's not a discount off the price and it's not cash in your pocket. It's the seller covering costs you'd otherwise pay: things like your lender fees, the appraisal, title and escrow charges, recording fees, and prepaid items such as property taxes, homeowners insurance, and the interest that accrues before your first payment.

FHA caps seller concessions at 6% of the sale price. On a $350,000 home, that's up to $21,000 the seller could contribute toward closing costs and prepaids, which is almost always more than your actual closing costs. That cap is generous, well above the 3% conventional loans typically allow on a low-down-payment purchase, and it's one of the quiet advantages of going FHA.

What Concessions Can and Can't Cover

Concessions can cover nearly every closing cost and prepaid item. They can also pay for a permanent or temporary interest rate buydown, which lowers your monthly payment. What they can't do is cover your down payment. FHA requires your 3.5% minimum investment to come from your own funds or an acceptable gift, never from the seller. That's a hard line, and it's the most common misunderstanding we untangle.

So the play is clean: your saved money goes toward the down payment, and the seller's concession wipes out most or all of your closing costs. A buyer who structured it well can walk into a $350,000 home having brought roughly the $12,250 down payment plus their earnest money, instead of that plus another $10,000 in costs.

How to Actually Negotiate Concessions Into Your Deal

The concession is part of your offer, so it starts with strategy before you write it. Talk to your loan officer first and get a real estimate of your total closing costs and prepaids; that's your target number. Then you and your agent decide how to ask.

In a buyer's market, and much of Texas and pockets of Arizona qualify right now with healthy inventory, you can often ask for concessions without giving up much. In a competitive situation, a common tactic is to offer at or slightly above list price and ask the seller to credit closing costs back. To the seller, a $355,000 offer with a $6,000 concession nets about the same as a $349,000 clean offer, but it lets you keep your cash. Sellers care about their net proceeds, so frame the ask in those terms.

One caution: concessions can't exceed your actual costs. If you negotiate a $12,000 credit but your total closing costs and prepaids are only $9,500, you don't pocket the extra $2,500. It either goes unused or gets applied to a rate buydown or extra prepaids. So aim the number at your real costs, not a random big figure.

A Realistic Arizona Example

Picture a buyer purchasing a $340,000 home in Glendale with 3.5% down. Remember, 3.5% down requires a 580 credit score; 500 to 579 requires 10% down. The down payment is $11,900. Estimated closing costs and prepaids come to about $9,000. The buyer offers $344,000 and asks for a $9,000 seller concession. The seller nets roughly what a $335,000 clean offer would bring, the buyer covers essentially none of their closing costs out of pocket, and the deal closes. That's $9,000 the buyer keeps in savings for moving costs, furniture, or an emergency fund, which is exactly where a new homeowner wants a cushion.

Concessions vs. a Price Reduction: Which Is Better?

Buyers often ask whether they should push for a lower price or ask for a concession. The answer depends on what's scarce for you: cash or monthly comfort. A price cut lowers your loan balance and your long-term interest, but it barely touches the cash you need at the table. A concession does the opposite, it slashes your upfront cash by covering closing costs, while leaving the loan roughly the same.

For most first-time buyers, cash-to-close is the binding constraint, so the concession usually wins. Consider a $340,000 home. A $10,000 price reduction to $330,000 lowers your monthly payment by maybe $65 and saves you a little on the down payment, but you still owe the full closing costs at the table. A $10,000 concession, by contrast, wipes out your closing costs entirely, keeping roughly $10,000 in your pocket on closing day. For a buyer stretching to assemble the cash, that's the difference between closing this month and waiting six more to save.

There's also a hybrid play we use often: offer slightly above asking and request a matching concession. A $346,000 offer with a $6,000 credit nets the seller about the same as a clean $340,000 offer, but folds your closing costs into the financed price. You spread those costs over the loan instead of paying them in cash. It's not free, you finance them, but for a cash-tight buyer it's often the smartest structure, and it's fully allowed within FHA's 6% concession cap.

Frequently Asked Questions

Can seller concessions cover my down payment on an FHA loan?

No. FHA requires your minimum 3.5% down payment to come from your own savings or a documented gift, never from the seller. Concessions can only be applied to closing costs, prepaid items, and rate buydowns. Keep the two buckets separate in your planning.

What is the maximum seller concession on an FHA loan?

FHA allows seller concessions up to 6% of the sale price. In practice your concession is limited to your actual closing costs and prepaids, since you can't receive credit beyond what you owe. For most buyers, the 6% ceiling is far higher than their real costs.

Will asking for concessions hurt my offer?

It can in a bidding war, but you can offset it by raising your price so the seller's net stays whole. In a balanced or buyer-friendly market, sellers routinely agree to concessions to close the deal. Your agent can read the local dynamic and structure the offer accordingly.

Your Next Step

Seller concessions are how a lot of our first-time buyers close without draining their savings. The key is knowing your real closing-cost number before you write the offer, then asking for it the right way. Get that number and a preliminary read on your buying power with our qualifier quiz, and check your full payment picture on the FHA payment calculator. If you're piecing together every dollar for the table, our breakdown of your real monthly FHA payment shows exactly what you're budgeting for. The CFPB explains closing costs if you want an independent overview.

Zac Cook is a licensed mortgage loan originator (NMLS #2111496), sponsored by Cornerstone First Mortgage, LLC.

DISCLAIMER: This article is for informational and educational purposes only and does not constitute financial advice, a loan commitment, or a guarantee of any terms or rates. All mortgage lending is subject to credit and property approval. Rates, terms, and conditions are subject to change without notice. Not all borrowers will qualify for every program mentioned. Contact a licensed loan originator for information specific to your situation.

Cornerstone First Mortgage, LLC | NMLS #173855 | Equal Housing Opportunity. Licensed by the Texas Department of Savings and Mortgage Lending. Arizona Mortgage Broker License #0910407. www.nmlsconsumeraccess.org

This material is not from HUD or FHA and has not been approved by HUD, FHA, or any government agency. Cornerstone First Mortgage, LLC is not affiliated with or acting on behalf of any government agency.