A seller offers to pay $19,000 of closing costs on a $250,000 FHA purchase, and the processor flags it.
Correct Answer
D) Concessions above 6% of the price are treated as a price reduction
FHA caps interested-party contributions at 6% of the sales price; $19,000 on $250,000 is 7.6%, so the excess is subtracted from the price before the loan amount is calculated. Other choices: 3% is the conventional cap at high LTV, not the FHA figure; 9% is the conventional cap at 90% LTV or below; and treating them as unlimited ignores the cap entirely, since an inflated price supported by a concession is the harm the rule addresses. Source: HUD Handbook 4000.1, interested party contributions
Why This Is the Correct Answer
FHA caps interested-party contributions at 6% of the sales price; $19,000 on $250,000 is 7.6%, so the excess is subtracted from the price before the loan amount is calculated. Other choices: 3% is the conventional cap at high LTV, not the FHA figure; 9% is the conventional cap at 90% LTV or below; and treating them as unlimited ignores the cap entirely, since an inflated price supported by a concession is the harm the rule addresses. Source: HUD Handbook 4000.1, interested party contributions
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