FHA May Reduce Seller-Paid Closing Costs from 6% to 3%

The FHA's rationale for the proposed rule change is that the current maximum level of seller concessions - 6% - exposes the agency to excessive risk. It also creates an incentive to inflate the appraised value of the property to cover the amount of the concession.

The proposed rule is being analyzed by the Federal Reserve before a final decision will be made. The FHA says the new rule would align FHA loans with industry practices and reduce loan defaults by borrowers who don't have a sufficient investment in their home purchase.

Buyers who do not have enough cash - after putting the required 3.5% down payment - to pay their close costs without a larger concession than the proposed 3% - should discuss their situation with a knowledgeable loan officer.