Standard closing costs cannot be included in an FHA loan. Appraisal fees, title insurance, recording charges, origination fees, and prepaid taxes and insurance all have to be paid at settlement rather than added to your loan balance. The one exception is the upfront mortgage insurance premium (UFMIP), which FHA rules let you finance into the loan. For everything else, the practical path to a smaller cash-to-close number is a combination of seller concessions, lender credits, and gift funds.
FHA closing costs typically run 2% to 6% of the loan amount, with many borrowers landing closer to 3% to 4%. On a $300,000 loan, that is roughly $6,000 to $18,000 on top of your down payment. Knowing that range early tells you how much of a gap the strategies below need to close.
The One Cost You Can Finance: UFMIP
Federal regulations allow the maximum insurable mortgage amount to be increased by the full upfront mortgage insurance premium, so you do not have to pay it in cash at closing.1eCFR. 24 CFR Part 203 – Single Family Mortgage Insurance The current UFMIP rate is 1.75% of the base loan amount.2U.S. Department of Housing and Urban Development (HUD). Appendix 1.0 – Mortgage Insurance Premiums On a $300,000 base loan, that adds $5,250, bringing your total financed amount to $305,250.
It is all or nothing. You can pay the entire UFMIP in cash or finance the entire amount; partial financing is not permitted. The premium is calculated by multiplying your base loan amount by 1.75%, and the result is added on top of the loan.3GovInfo. 24 CFR 203.281 – Calculation of One-Time MIP The Code of Federal Regulations sets a ceiling of 2.25%, but the Commissioner has set the actual rate at 1.75% through a published mortgagee letter.2U.S. Department of Housing and Urban Development (HUD). Appendix 1.0 – Mortgage Insurance Premiums
How Financing the UFMIP Affects Your Payment
FHA loans also carry an annual mortgage insurance premium, split into twelve monthly installments and added to your payment. For most borrowers with a loan-to-value above 95% and a term longer than 15 years, the annual rate is 0.55% of the outstanding balance on loans up to $726,200, or 0.75% on larger loans.2U.S. Department of Housing and Urban Development (HUD). Appendix 1.0 – Mortgage Insurance Premiums Because that annual premium is calculated on your total loan balance, financing the UFMIP nudges your monthly insurance cost up slightly.
Financing a $5,250 UFMIP on a loan that would otherwise be $300,000 means the annual MIP is calculated on $305,250 instead. At 0.55%, that is about $2.41 more per month. The effect is small on its own, but it lasts as long as you carry the premium.
Seller Concessions Up to 6%
Because standard closing costs cannot ride along in the loan, the most common way to keep cash out of the deal is to negotiate seller concessions, formally called interested party contributions. FHA rules allow the seller, real estate agents, a builder, or any other party with a financial interest in the transaction to contribute up to 6% of the sale price toward your closing costs.4U.S. Department of Housing and Urban Development (HUD). FHA Single Family Housing Policy Handbook 4000.1 On a $300,000 home, that is a $18,000 ceiling.
Those contributions can cover:
- Origination fees
- Prepaid property taxes, homeowners insurance, and hazard insurance funded into escrow
- Title search, title insurance, and related title charges
- Discount points to buy down your rate
- The UFMIP, if the seller agrees to pay it on your behalf
Contributions above 6% of the sale price trigger a dollar-for-dollar reduction in the property’s value for loan calculation purposes, so the concession is worth writing carefully into the purchase contract. The exact amount belongs in the contract itself so the lender processes the credits correctly.
What Seller Concessions Cannot Cover
Seller concessions cannot be applied to your minimum required investment, which is the 3.5% down payment FHA requires on most loans.4U.S. Department of Housing and Urban Development (HUD). FHA Single Family Housing Policy Handbook 4000.1 That 3.5% has to come from your own funds, gift funds, or another eligible source. Treating a seller credit as down payment help is one of the most common reasons FHA files hit trouble late in underwriting.
Lender Credits in Exchange for a Higher Rate
Another way to reduce what you owe at closing without writing a check is to accept a lender credit in exchange for a slightly higher interest rate. A lender might offer a $4,000 credit if you take a rate 0.25% above the base pricing that day. The exact numbers depend on the lender, your loan size, and how far you are willing to move the rate.
The credit appears on your Closing Disclosure as a line item labeled “Lender Credits” and reduces your settlement charges directly.5eCFR. 12 CFR 1026.38 – Content of Disclosures for Certain Mortgage Transactions (Closing Disclosure) Lender credits are excluded from the 6% seller concession cap, as long as the lender is not also the seller, real estate agent, or builder in the transaction.4U.S. Department of Housing and Urban Development (HUD). FHA Single Family Housing Policy Handbook 4000.1 That means you can stack a full 6% seller concession with a lender credit and potentially cover most or all of your closing costs.
Gift Funds From Family and Others
Gift funds are the one source of cash that can pay both closing costs and part of your down payment. Eligible donors include family members such as parents, siblings, or grandparents; your employer or labor union; close friends with a clearly defined interest in helping you; charitable organizations providing homeownership assistance; and government agencies with programs for low- or moderate-income or first-time buyers.
The donor has to provide a signed gift letter stating the dollar amount and confirming that no repayment is expected. Your lender will also need a paper trail: usually the donor’s bank statement showing the withdrawal and yours showing the deposit. If the money has not yet reached your account, the lender may ask for a certified check, cashier’s check, or wire transfer receipt instead.4U.S. Department of Housing and Urban Development (HUD). FHA Single Family Housing Policy Handbook 4000.1
Watch the FHA Loan Limit
Your total FHA loan, including any financed UFMIP, cannot exceed the FHA loan limit for your area. For 2026, the floor limit for a single-family home in a standard-cost area is $541,287, and the ceiling in high-cost areas is $1,249,125.6U.S. Department of Housing and Urban Development (HUD). HUD’s Federal Housing Administration Announces 2026 Loan Limits If your base loan plus a financed UFMIP would push you over the county limit, you will have to pay the UFMIP in cash or reduce the purchase price.
Confirm It All on the Closing Disclosure
Three business days before closing, your lender has to deliver a Closing Disclosure that replaces the earlier Loan Estimate.7Consumer Financial Protection Bureau. Know Before You Owe – Mortgages Go to the “Cash to Close” section first. That figure is the final amount you owe at the table after seller concessions, lender credits, and the financed UFMIP have all been applied.
Compare each line to your Loan Estimate. If a fee has grown beyond what regulations allow, or a credit you negotiated is missing, raise it with your lender before you sit down with the notary or escrow officer. That is your last practical window to fix a math problem before funds disburse.