Mortgage Loan Originator (MLO) Licensing Practice Test

What is the maximum seller concession for an FHA loan?

1. 3%

2. 5%

3. 6%

4. 8%

The correct answer is: 6%

For an FHA loan, the maximum seller concession allowed is 6% of the sales price or appraised value. Seller concessions are essentially contributions made by the seller towards the buyer's closing costs, prepaid expenses, or other costs associated with the transaction. This flexibility can help make homeownership more accessible for borrowers by reducing the amount of cash they need to close the loan. The rationale behind allowing a maximum of 6% is to balance the interests of buyers and sellers, ensuring that buyers have adequate assistance with their closing costs while minimizing the risk for lenders. A higher percentage might lead to inflated sales prices or increased risk of default, while a lower percentage might not provide sufficient support to buyers, particularly first-time homeowners who may struggle with upfront costs. Thus, the 6% ceiling is established as an effective compromise that benefits both parties in an FHA transaction.