Seller credits: FHA 6% vs conventional caps in California
Quick answer: FHA seller concessions are capped at 6% under HUD Handbook 4000.1. Conventional interested-party contribution caps vary by down payment and LTV. High-LTV conventional is tighter than FHA 6%. Credits pay closing costs and prepaid items. They are not cash back, and builder credits on new construction count toward the same cap.
San Diego buyers write "seller to credit 3% toward closing" on a California purchase contract and assume every loan type will take it. FHA and conventional do not use the same cap. The fee list is on closing costs in California. The program split is on FHA vs conventional in San Diego. This page is the concession math.
Left Coast Leaders, Inc. (NMLS #2394495) sizes the credit to the program before you write the offer, including builder incentives on new construction in Otay Ranch, Eastlake, and the rest of the county.
FHA 6% is the HUD seller-concession cap
HUD Handbook 4000.1 caps interested-party contributions on an FHA purchase at 6% of the lesser of the sales price or the appraised value. That is the number we use. It is not a California statute. It is the FHA rule. The 6% bucket covers seller credits, builder credits, and other interested-party money toward your allowable closing costs and prepaid items.
FHA still has a 3.5% minimum down on most purchases. A seller credit does not replace that down payment. If you need the seller to cover cash to close, we check that the credit fits inside 6% and inside actual costs. Excess gets cut. We do not invent a way to turn leftover credit into cash at the table.
Conventional caps move with LTV
Conventional (Fannie Mae and Freddie Mac) interested-party contribution limits are not one number. They change with occupancy and loan-to-value. High-LTV conventional, meaning a small down payment, is tighter than FHA's 6%. Put more down, and the conventional cap can open up. Investment property is tighter still.
We do not post a single conventional percent on this page. Lender overlays can sit inside investor rules. The exact cap depends on your down payment and LTV on that file. If someone tells you "conventional is always 3%" or "always 6%," they are flattening a table that is not flat. Ask us to run the LTV on the contract price before you lock a credit into the offer.
| FHA | Conventional | |
|---|---|---|
| Concession cap | 6% (HUD Handbook 4000.1), lesser of price or value | Varies by LTV and occupancy. High-LTV is tighter than FHA 6% |
| What the credit can pay | Allowable closing costs and prepaid items | Allowable closing costs and prepaid items, inside that file's cap |
| Cash back | No | No |
| Builder credits | Count toward the 6% | Count toward the LTV-based cap |
| 2026 1-unit San Diego loan line | $1,104,000 FHA (low-balance floor $832,750) | $1,104,000 conforming high-balance; above that is jumbo, with its own rules |
Credits pay costs. They are not cash back.
A seller credit reduces what you bring to closing. Typical uses in a California escrow:
- Lender fees, origination, and discount points you choose to buy.
- Title, escrow, and recording on the buyer side.
- Prepaid interest, homeowner's insurance, and tax impounds.
- A temporary or permanent buydown paid by the seller or builder.
The credit cannot exceed actual allowable costs. If the contract credit is larger than actual allowable costs, the extra does not become a check. Underwriting cuts it, or the parties convert it to a price reduction, which then has to clear the appraisal. Do not write a credit larger than the Loan Estimate just to "leave room."
Seller credits also do not change the FHA or conventional minimum down payment. You still need your own funds, gift funds if the program allows them, or a program-legal assistance source for the down payment piece.
What counts as an interested-party contribution
Investors treat money from people who benefit from the sale as an interested-party contribution. That includes:
- The seller of the house.
- The builder or developer on new construction.
- A real estate agent contributing from commission in some structures.
- Other parties with an interest in seeing the deal close, when the investor says they count.
Family gift funds for down payment are a different rule set. Do not mix "mom is gifting down payment" with "seller is crediting closing costs" and call both a seller credit. Gift funds have their own paper trail. Seller credits have a cap. We keep them on separate lines so underwriting does not collapse them into one IPC bucket by mistake.
New construction builder credits use the same caps
Otay Ranch, Eastlake, San Marcos, and Oceanside tract desks still advertise large closing-cost credits and buydowns. Those credits count. On FHA they sit inside the 6%. On conventional they sit inside the LTV-based cap. A preferred-lender incentive that looks generous on month one can exceed the cap, or it can be paired with a higher note rate that wipes out the savings.
We price the builder quote next to an independent lock on the same credit, down payment, and lock period. Take the incentive when total cost wins. Details on the calendar live on new construction mortgages in San Diego. The Otay Ranch FHA overlay is FHA on Otay Ranch / Eastlake new construction.
How we write the credit into a California offer
On a San Diego resale, the purchase contract names a dollar credit or a percent of price toward buyer's costs. We size it to the program before you sign:
- Pick FHA or conventional on the real credit, down payment, and occupancy. Do not guess the cap after acceptance.
- Estimate allowable costs from a Loan Estimate, not a round percentage of price.
- Keep the credit at or under the program cap and at or under those costs.
- If the seller will not credit enough, change price, change down payment, or change product. Do not invent a seventh percent on FHA.
Amir Nurani (NMLS #197458) will not let a Chula Vista or Clairemont offer depend on a credit the investor will cut on the Closing Disclosure. Get a real pre-approval with the product named, then write the credit to that cap. Phone: (619) 366-9494.
Frequently asked questions
HUD Handbook 4000.1 caps interested-party contributions on FHA purchases at 6% of the lesser of the sales price or appraised value. That 6% covers seller credits, builder credits, and other interested-party money toward your closing costs and prepaid items. It is not a cash-back check. Credits that exceed actual allowable costs get cut.
No. Conventional interested-party contribution caps vary by loan-to-value (LTV) and occupancy. High-LTV conventional (small down payment) is tighter than FHA's 6%. A larger down payment can allow a higher conventional cap. We do not quote a single conventional percent. The exact cap depends on your down payment and LTV on that file.
Yes. Builder closing-cost credits, buydowns the builder pays, and similar interested-party money count toward the same FHA 6% cap or the conventional LTV-based cap. A giant incentive that exceeds the cap does not magically apply. It gets cut or converted to a price reduction, which then has to clear the appraisal.
Need a seller or builder credit sized to the loan?
We will name FHA or conventional, then write the credit to the actual cap and the Loan Estimate, before you offer.
Get Pre-Approved(619) 366-9494 · Amir Nurani · NMLS #197458
Left Coast Leaders, Inc. · NMLS #2394495 · DRE #02191517 · Equal Housing Lender · San Diego, CA