We have already addressed that FHA allows up to a 6% seller contribution (this does not take in to account and contribution that seller may make to a DPA) . The 6% contribution is the accumulation of fees paid by the seller, builder or realtor on behalf of the borrower. The 6% can not go towards down payment but it can cover:
Buyers closing Costs
Up-Front MIP (must cover all or none)
Can pay one years HOA fees or property taxes.
If these fees were to go toward upgrades in the property this would be considered an unacceptable concession, unless it was required by the property inspection or appraisal (in this case however it would not be necessary to the count these cost towards the seller concession fee).
However up grades can be made but payment must go to a third party and is not considered part of the seller concession even if not required by the appraisal or inspection. This scenario would require that it is part of the REPC stating the improvements made and who the third party funds will go to. The upgrades must usually be complete prior to closing and confirmed as completed by the appraiser or inspector. Even in this case the cost of improvements need not be considered as part of the 6% contributions.