Can Closing Costs Be Included in an FHA Loan?

With an FHA loan, you generally cannot roll closing costs into the loan balance. The one exception is the upfront mortgage insurance premium (UFMIP), which federal rules let you finance on top of your base loan amount. Everything else — appraisal, title insurance, recording fees, prepaid taxes and insurance, origination charges — has to be paid at closing. The good news is that FHA rules give you several ways to cover those costs without writing a large check yourself: seller concessions up to 6% of the sale price, lender credits, and gift funds from eligible donors.

FHA closing costs typically run 2% to 6% of the loan amount, with most borrowers landing closer to 3% to 4%. On a $300,000 loan, that is roughly $6,000 to $18,000 beyond your down payment. Knowing the approximate number early lets you decide which of the strategies below needs to do the heavy lifting.

The One Cost You Can Finance: The Upfront MIP

FHA regulations allow the maximum insurable mortgage to be increased by the full UFMIP, so you do not have to bring that money to closing.¹ The current UFMIP rate is 1.75% of the base loan amount.² On a $300,000 base loan, that adds $5,250, bringing your financed total to $305,250.

It is all or nothing. You can pay the full UFMIP in cash or finance the full amount; partial financing is not permitted.³

How Financing the UFMIP Affects Your Monthly Payment

FHA loans also carry an annual mortgage insurance premium, divided into twelve monthly installments. For most borrowers with a loan-to-value ratio 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.² Because that annual premium is calculated on the total loan balance, financing the UFMIP slightly increases your monthly MIP for as long as you carry the premium.

On the $300,000 example above, financing the $5,250 UFMIP adds roughly $2.41 per month at the 0.55% annual rate. Small per month, but it compounds across the years you hold the loan.

Watch the Loan Limit

Your total FHA loan amount, including any financed UFMIP, cannot exceed the FHA 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 $1,249,125.⁴ If adding the UFMIP would push you over the limit for your county, you will have to pay it in cash or reduce the purchase price.

Costs You Cannot Roll Into the Loan

Everything else on your settlement statement has to be paid at closing. That includes the fees your lender requires for services like the appraisal, credit report, title examination, title insurance, recording charges, and survey when needed, along with prepaid items such as homeowners insurance, property taxes going into escrow, and per-diem interest from closing to month-end.⁵ None of these can be added to the loan balance. The three strategies below are how most FHA buyers cover them without draining their savings.

Seller Concessions Up to 6%

The most common tool is a seller concession, formally called an interested party contribution. FHA rules let the seller, real estate agents, a builder, or any party with a financial interest in the deal contribute up to 6% of the sale price toward your closing costs.⁶ On a $300,000 home, that is up to $18,000.

Eligible uses include:

Origination fees
Prepaid property taxes, homeowners insurance, and hazard insurance going into escrow
Title search, title insurance, and related title charges
Discount points to buy down your rate
The UFMIP, if you want the seller to pay it rather than financing it

Spell out the concession amount in your purchase contract so the lender can apply the credits accurately. Any amount over 6% of the sale price triggers a dollar-for-dollar reduction in the property’s value for loan calculation purposes.

Seller Concessions Cannot Touch Your Down Payment

This is the mistake that derails FHA deals late in the process. Seller concessions cannot be used to satisfy your minimum required investment — the 3.5% down payment FHA requires on most loans.⁶ That 3.5% has to come from your own funds, gift funds, or other eligible sources. Closing cost credits and down payment are separate buckets.

Lender Credits in Exchange for a Higher Rate

You can also ask your lender for a credit in exchange for accepting a slightly higher interest rate, sometimes called premium pricing. A lender might offer, say, a $4,000 credit if you take a rate 0.25% above the base rate that day. The exact numbers depend on the lender’s pricing, your loan size, and the rate increment you agree to. The credit shows up on your Closing Disclosure as a line labeled “Lender Credits” and offsets your settlement charges directly.⁷

Lender credits sit outside the 6% seller concession cap, provided the lender is not also the seller, agent, or builder in the transaction.⁶ You can stack a full 6% seller concession with a lender credit and potentially cover all your closing costs.

Gift Funds

FHA guidelines let you receive gift funds for closing costs, and unlike seller concessions, gift funds can also go toward your 3.5% down payment. Eligible donors include family members, your employer or labor union, close friends with a documented interest in helping, charitable organizations that provide homeownership assistance, and government agencies with programs for low- or moderate-income or first-time buyers.

The donor has to sign a gift letter stating the amount and confirming that no repayment is expected. Your lender will also want a paper trail: the donor’s bank statement showing the withdrawal and your statement showing the deposit. If the money has not yet landed in your account, a certified check, cashier’s check, or wire receipt usually works instead.⁶

Fees Your Lender Is Not Allowed to Charge

FHA rules prohibit a lender from collecting fees for services that were not actually performed, paying or accepting referral fees, or fronting money to a real estate agent or broker as an advance on expected commissions.⁸ If your estimate contains vague “administrative” or “processing” line items that do not match a specific service, ask the lender to explain the charge or remove it. Lenders also have to disclose every charge, fee, and discount before FHA will insure the mortgage, and HUD can review those charges before and after endorsement.⁵

Confirming the Numbers on Your Closing Disclosure

Three business days before closing, your lender has to give you a Closing Disclosure that replaces the earlier Loan Estimate.⁹ Go straight to the “Cash to Close” section. That figure reflects everything already applied: your financed UFMIP, every seller concession, every lender credit, every gift fund deposit. It is the actual check you will write.

Then compare the Closing Disclosure line by line against your Loan Estimate. If a fee has grown beyond what the regulations allow, or a credit you negotiated is missing, raise it with your lender before you sit down to sign. Fixing it after disbursement is far harder than fixing it the day before.

1
eCFR. 24 CFR Part 203 – Single Family Mortgage Insurance
2
U.S. Department of Housing and Urban Development (HUD). Appendix 1.0 – Mortgage Insurance Premiums
3
GovInfo. 24 CFR 203.281 – Calculation of One-Time MIP
4
U.S. Department of Housing and Urban Development (HUD). HUD’s Federal Housing Administration Announces 2026 Loan Limits
5
eCFR. 24 CFR 203.27 – Charges, Fees or Discounts
6
U.S. Department of Housing and Urban Development (HUD). FHA Single Family Housing Policy Handbook 4000.1
7
eCFR. 12 CFR 1026.38 – Content of Disclosures for Certain Mortgage Transactions (Closing Disclosure)
8
U.S. Department of Housing and Urban Development (HUD). FHA Single Family Housing Policy Handbook 4000.1
9
Consumer Financial Protection Bureau. Know Before You Owe – Mortgages