A no closing cost mortgage does not make closing costs disappear. Someone still pays them, and on an FHA purchase the options are specific: the seller can contribute, the lender can credit you in exchange for a higher interest rate, or the costs can be split between the two. What changes is who pays at the closing table. This article explains how FHA no-out-of-pocket closing options work, what each one costs over time, and how Duane Buziak, a mortgage broker who specializes in FHA loans, helps buyers decide whether one fits their situation.
The Short Answer: Closing Costs Are Shifted, Not Erased
Quick answer: An FHA no closing cost mortgage is a standard FHA purchase loan structured so you bring little or no cash for closing costs. The costs are still owed. A seller credit, a lender credit (paid for through a higher rate), or both cover them, and the upfront mortgage insurance can be financed into the loan.
On an FHA purchase, closing costs generally include:
- Lender and origination fees
- The appraisal
- Title, settlement, and recording charges
- Prepaids, meaning the first-year homeowners insurance premium and some property tax and interest collected at closing
- Escrow deposits that start your tax and insurance reserve
- The upfront mortgage insurance premium (UFMIP), which is 1.75% of the base loan amount
Duane Buziak uses the phrase “no-out-of-pocket closing options” rather than “zero closing costs” for a reason. Zero implies the costs were erased. They were moved, either onto the seller, into the interest rate, or into the loan balance.
It also helps to correct a common misconception. “No closing cost” is not a separate loan product. There is no special FHA program with that name. It is a pricing and negotiation structure layered on top of an ordinary FHA purchase mortgage, which means the same FHA eligibility rules apply and the same mortgage insurance applies. For a general explanation of what closing costs are and how to read your Loan Estimate, the Consumer Financial Protection Bureau’s homebuying resources are a good neutral reference.
Four Ways FHA Buyers Cover Closing Costs Without Cash
Seller concessions
HUD allows the seller, and other interested parties such as a builder or real estate agent, to contribute up to 6% of the sales price toward the buyer’s closing costs and prepaids on an FHA purchase. This limit comes from HUD Handbook 4000.1, which you should confirm at hud.gov because handbook rules are updated periodically. Two limits matter. The contribution cannot exceed the buyer’s actual costs, so a concession larger than your closing costs and prepaids does not put cash in your pocket. And a seller contribution cannot be used toward the down payment.
Lender credits
With a lender credit, you accept a higher interest rate than the lowest one available, and the pricing difference is returned as a credit that offsets costs. It is a trade of monthly payment for cash today. The size of the credit at each rate depends on the day’s pricing, so no one can honestly promise a number in advance. The next section shows how to measure the trade.
Gift funds and assistance programs
FHA allows the down payment and closing funds to come from gifts by approved donors, such as family members, with a gift letter and documentation of the transfer. Some state and local down payment assistance programs can also be paired with an FHA loan. Their rules, eligibility, and repayment terms vary by program and change often, so each one has to be verified before you build a plan around it.
Financing the upfront premium
The 1.75% UFMIP can be rolled into the loan amount instead of being paid in cash (HUD Mortgagee Letter 2015-01 is the reference for the current premium structure). For most FHA buyers, this is the biggest single way to lower cash due at closing. On a $337,750 base loan, UFMIP is about $5,911, and financing it means that amount never touches your bank account at closing. The cost is that your loan balance rises and you pay interest on that premium for as long as you hold the loan.
These levers can be combined. A common structure is financed UFMIP plus a seller concession, with a lender credit used only to cover any remaining gap.
What a Lender Credit Costs You Over Time
A lender credit lowers cash due at closing and raises the payment every month afterward. The comparison that matters is the break-even: divide the credit by the extra monthly cost, and you get the number of months before the credit has been paid back through higher payments. If you expect to keep the loan longer than that, the credit costs you more than it saves.
Here is an illustration, not a quote. Suppose you buy a $350,000 home in Henrico County, Virginia, with 3.5% down ($12,250). The base loan is $337,750. UFMIP of 1.75% is $5,911, which is financed, so the loan balance is about $343,661. The rates below are illustrative only.
- Property tax: Henrico’s rate is $0.85 per $100 of assessed value (henrico.us, confirm the current rate there). Assuming assessment equals price, that is $2,975 a year, or about $248 a month.
- Annual MIP: 0.55% for a 30-year loan above 95% loan-to-value (HUD Mortgagee Letter 2023-05; tiers are in Handbook 4000.1). On the $337,750 base loan, that is about $1,858 a year, or roughly $155 a month.
- Homeowners insurance: assumed at $1,500 a year, or $125 a month.
Scenario A, cash closing costs: an illustrative 6.50% rate gives principal and interest of about $2,172. Total monthly payment is about $2,700. You pay all closing costs in cash.
Scenario B, lender credit: an illustrative 7.00% rate gives principal and interest of about $2,286. Total monthly payment is about $2,814. Suppose the higher rate earns a $5,000 credit, reducing your cash due at closing by $5,000.
The monthly difference is about $114. Dividing $5,000 by $114 gives a break-even of roughly 44 months, a little over three and a half years. Over five years the higher payment totals about $6,840, so the credit would have cost you about $1,840 more than it saved. Over ten years the gap grows to several thousand dollars more. If you plan to refinance or sell within three years, the credit may come out ahead.
One detail on financed UFMIP: it increases the balance your principal and interest are calculated on, but HUD calculates annual MIP on the base loan amount, excluding the financed premium. That is why the annual MIP above uses $337,750 rather than $343,661. Confirm the calculation method in Handbook 4000.1.
FHA Credit Score Tiers and Down Payment Requirements
HUD’s minimums, per Handbook 4000.1 (verify the current text at hud.gov before relying on them), work in two tiers:
- 580 and above: eligible for the minimum 3.5% down payment.
- 500 to 579: requires at least 10% down.
These are HUD floors. Individual lenders can add overlays, such as a higher minimum score, and many do. This is where access to many lenders matters. Duane Buziak, as a broker, can place a file with a lender whose overlays fit the borrower rather than being limited to one company’s overlays.
Credit and reserves also affect how much room you have to negotiate. A lower score typically means less favorable pricing, so a lender credit costs more rate per dollar of credit. Thin reserves leave less flexibility if the seller agrees to concessions but the appraisal or inspection changes the numbers.
The mortgage insurance structure is the second table to understand:
- UFMIP: 1.75% of the base loan amount, flat.
- Annual MIP: ranges from 0.15% to 0.75%, depending on loan term, loan-to-value, and base loan amount. A 30-year loan above 95% loan-to-value at the standard loan-amount tier is 0.55%. Exact basis points for every tier are in Handbook 4000.1, Appendix 1.0.
- Duration: for 30-year loans, annual MIP lasts 11 years when the down payment is 10% or more, and the life of the loan when it is less. Confirm the current rule in the handbook.
Duane Buziak can review a buyer’s scenario with a NoTouch Credit Pull, a soft pull with no hard inquiry, so you can see which tier you fall into and what structures are realistic before your score is affected.
FHA Loan Limits and Seller Concession Rules for 2026
For 2026, the FHA one-unit loan limit is $541,287 in standard-cost areas (the floor) and $1,249,125 in the highest-cost areas (the ceiling). These figures apply to case numbers assigned on or after January 1, 2026, per HUD Mortgagee Letter 2025-23. Limits for two-, three-, and four-unit properties are higher and vary by county. Pull exact figures from HUD’s loan limit lookup, which reflects the current numbers.
Limits are set county by county, so Richmond-metro counties such as Henrico, Chesterfield, and Hanover should each be checked individually rather than assumed to match one another. The loan limit applies to the base loan amount, so the financed UFMIP sits on top of it.
Seller concessions depend on the appraisal. The home must appraise at or above the contract price, and the concession is capped at 6% of the sales price. If a home with a $350,000 contract price appraises at $335,000, the deal has to be renegotiated or the buyer has to cover the shortfall. A concession negotiated into the contract does not change that. FHA also bases the loan on the lesser of the sales price or appraised value, so a seller who agrees to a higher price in exchange for a larger credit only works if the appraisal supports the higher price.
Whether sellers accept concessions depends on the local market. Where buyers have more leverage, sellers may agree readily. Where homes draw multiple offers, an offer that asks for concessions can look weaker than one that does not. Check with your agent about current conditions in your price range instead of assuming either way.
FHA vs. Conventional: Where FHA Makes Closing Costs Easier to Cover
Within the FHA framework, several features make it easier to reduce cash needed at closing. A short contrast with conventional financing shows why:
- Seller concession cap: FHA allows up to 6% of the sales price regardless of down payment. Conventional caps vary with the down payment and occupancy, from 3% to 9% under Fannie Mae’s guidelines, so confirm the current figure for your scenario.
- Minimum down payment: FHA is 3.5% with a 580 score. Conventional minimums depend on the specific program and the borrower’s credit profile.
- Credit flexibility: FHA accepts scores down to 500 with 10% down. Conventional pricing and eligibility tighten faster as scores fall.
- Financed upfront premium: FHA’s 1.75% UFMIP can be rolled into the loan, directly reducing cash at closing. Conventional private mortgage insurance is typically structured differently.
The trade-off is real. FHA mortgage insurance is charged in addition to the loan’s interest, and on loans with under 10% down it lasts for the life of the loan. A buyer who will eventually have enough equity to drop conventional mortgage insurance may pay less in the long run on a different program. That is why total cost should be compared over the years you actually expect to hold the loan, not just at closing.
How Duane Buziak Structures No-Out-of-Pocket Closing Options Across Virginia and Beyond
Duane Buziak works as a mortgage broker, not a lender, which affects how lender credits are priced. With access to hundreds of wholesale lenders, he can compare how different lenders price the same credit instead of presenting one company’s rate sheet. A single-company retail lender, including national names such as Rocket Mortgage or Movement Mortgage, prices from its own offerings. The Dare to Compare pricing challenge exists for exactly this reason: bring a Loan Estimate from anywhere else and see how it stacks up. No specific rate outcome is promised, because pricing moves daily.
Virginia is the primary market, and the Richmond-metro counties are where the property tax assumptions in a total-cost comparison matter most: Henrico at $0.85 per $100, Chesterfield at $0.89, and Hanover at $0.81, each verifiable on the county’s website. Duane Buziak is also licensed in Florida, Georgia, Kentucky, Maryland, North Carolina, South Carolina, Tennessee, Texas, West Virginia, and the District of Columbia. The FHA rules described here are federal, but taxes, transfer charges, and local closing customs differ, so the dollar comparison is rebuilt for each location.
The process typically runs in four steps:
- Pre-review the scenario. Using a NoTouch Credit Pull, Duane Buziak checks credit tier, income, and likely costs without a hard inquiry.
- Choose the structure. The options are a seller concession, a lender credit, or both, along with whether to finance the UFMIP.
- Compare payment against cash saved. Each structure gets a monthly payment and a break-even against your expected time in the home.
- Write the offer. The contract carries the right concession language, tied to the 6% cap and to actual costs, before it goes to the seller.
Questions FHA Buyers Ask About No-Out-of-Pocket Closings
Is there really a mortgage with no closing costs?
No. Closing costs always exist. A no-out-of-pocket structure only changes who pays them at closing: the seller, the lender through a higher rate, or you through a larger loan balance.
How much can a seller contribute on an FHA loan?
Up to 6% of the sales price toward closing costs and prepaids, per HUD Handbook 4000.1. The contribution cannot exceed your actual costs.
Can seller concessions pay for my down payment?
No. Seller contributions cannot be applied to the down payment. The minimum investment must come from your own funds or an allowed source such as a documented gift.
Can I finance the FHA upfront mortgage insurance?
Yes. The 1.75% UFMIP can be added to the loan amount instead of being paid in cash, which raises your balance and the interest you pay on it.
Is a lender credit free?
No. It is paid for through a higher interest rate, which raises your monthly payment. Compare the credit with the added monthly cost over the years you plan to stay.
What credit score do I need for an FHA loan?
HUD’s minimum is 580 for 3.5% down, or 500 to 579 with 10% down. Lenders may set higher minimums, which is why shopping across lenders matters.
Can a family member gift me closing money?
Yes, FHA permits gifts from approved donors with a gift letter and documented transfer. Confirm the specifics for your file before the transfer is made.
Does checking my options affect my credit score?
Not with a NoTouch Credit Pull. It is a soft pull with no hard inquiry, so Duane Buziak can review your scenario before a full credit pull is needed.
Is FHA Mortgages by Duane Buziak a lender?
No. Duane Buziak is a mortgage broker, licensed in Florida, Georgia, Kentucky, Maryland, North Carolina, South Carolina, Tennessee, Texas, Virginia, West Virginia, and DC, who places FHA loans with wholesale lenders.
Cash Today Versus Cost Over Time: Choosing Your Closing Structure
A no-out-of-pocket FHA closing trades cash now for cost later, and the right answer depends on how long you will hold the loan and how much cash you need to keep. A seller concession usually costs you the least, since the cost lands in the purchase negotiation. A lender credit costs the most over time if you stay past its break-even. Financing the UFMIP is the quietest lever, and worth using when cash is tight.
Ready to take the first step toward homeownership with an FHA loan tailored to your needs? Schedule your free consultation today and discover how our award-winning team can help you navigate the path to your new home with competitive rates and expert guidance. FHA Mortgages by Duane Buziak offers access to hundreds of wholesale lenders, a NoTouch Credit Pull, the Dare to Compare pricing challenge, and no-out-of-pocket closing options. Call 804-212-8663 or visit 4860 Cox Rd, Glen Allen, VA 23060.
