Maximum Seller Financing Contributions

March 9th, 2015

It is important to know how much a seller, or any interested party (i.e. a realtor, builder, or seller) can contribute to a buyer’s closing costs. Many people get confused as to what is allowed, and some realtors write up a sales contract with dollar amounts that are not allowed per mortgage guidelines, which will cause problems with the loan. Below are the current maximum seller financing contributions allowed:

 

Investment Property:
For all investment property, regardless of down payment, using Conventional Agency financing (i.e. Fannie Mae or Freddie Mac):
2% of the sales price.


Conventional loans:

For a primary residence or vacation home using Conventional Agency financing:
3% of sales price for any 5% down payment loan (95% loan-to-value).
6% of sales price for any 10% or 20% down payment loan (90% or 80% loan-to-value).


FHA loans:

For an FHA loan:
6% of the sales price at all loan-to-values.

Related article: Should I get a seller credit or a lender credit? What is a lender credit?


Jumbo loans:

For a Jumbo loan the maximum concession is typically:
6% of the sales price at all loan-to-values.

However, I have seen some variance on Jumbo loans, depending on which lender is being used.

I have seen:
6% credit on 75.01% to 80% loan-to-value.
9% of the sales price at 75.00% or lower loan-to-value.

I have also seen:
3% of the sales price at 75% loan-to-value and up to 85% loan-to-value.
6% of the sales price at 75.00% or lower loan-to-value.

Ask your lender before writing a contract to be 100% sure on all Jumbo loans.


VA loans:

There is no limit to how much a veteran can receive in concessions towards what is considered customary; however, there is a 4% of the sales price limit on things that are considered outside of what is customary. These would be things like Home Depot gift cards, discount points the on VA Funding Fee, and the payoff of debt, collections, and judgments to help the veteran qualify.

So to reiterate, the seller may pay all reasonable and customary closing costs and discount points without limit, but the things that are considered non-customary have a 4% limit. The reality is that it’s hard to approach either of these limits anyway.

While we are talking about closing costs, it’s important to note you cannot charge the veteran for a termite report, application fees cannot be charged by the lender, and realtors cannot charge any administration fee.

Related article: Seller credits in lieu of repairs.

 

It is important to note that if the amount of concessions you have received exceeds the actual closing costs, you cannot get the difference in cash back.

For example:
$6,000 seller concession towards closing costs
$5,600 actual closing costs

In this scenario the buyer would be not be able to receive $400 in cash, they would miss out on utilizing the last $400 in concessions. So be sure to plan the dollar amount that you are going to request carefully, and make sure you will get full use of all concessions, since its a use it or lose it proposition.

In general, these concessions can be towards all closing costs such as lender fees, title fees, title insurance, transfer and recordation taxes, as well as property tax escrows, homeowners’ insurance escrows, and even per diem interest.

However, the reality is that regardless of what is allowed based on the guidelines, on the average 0 point loan the closing costs may only be 2.5% to 3.5%, so you may not be able to use a larger seller credit even if it’s allowed, unless you buy down the rate and pay points to get the closing costs higher. But you want to be careful about artificially inflating the sales price to cover closing costs, just to buy the rate down.

Keep in mind that a seller isn’t usually going to credit a buyer the closing cost credits out of the goodness of their heart, the amount is most often going to be built into the sales price. So you are financing the closing costs for the life of the loan and will end up paying more for them as a result. But if you are short of the needed cash to close your loan and a seller credit is going to help make the purchase happen, then it can be a good tool to use.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.​

Tags: , ,

Bookmark and Share

Leave a Reply