Interested-party contributions (IPCs also know as seller contributions) are costs that normally are the responsibility of the property purchaser that are paid (directly or indirectly) by someone else who has a financial interest in, or can influence the terms and the sale or transfer of, the subject property. These persons or entities include, but are not limited to, the property seller, the builder/developer, and the real estate agent or broker (or an affiliate who may benefit from the sale of the property and/or the sale of the property at the highest price possible).

IPCs provide an incentive for a borrower to purchase a particular property, and in certain real estate markets, IPCs may be used to artificially inflate or maintain the sales price of a property. Fannie Mae has established definitive terms for what constitutes an IPC, specific limits on the use and permissible amounts of IPCs, and how IPCs in excess of permissible limits must be treated. These guidelines are designed to help avoid practices that may distort or artificially inflate the market value of properties.

Convetional Conforming Limits

• If you are buying a home as investment property or rental, the maximum contribution allowed by and interested-party is 2% of the sales price
• If you are buying a home as your primary residence there is a little more flexibility. At 9.99% down or less the maximum contribution is 3%. Put 10% to 24.99% down the maximum contribution by an interested-party is 5%. Lastly any more than 25% down and the interested party can contribute 9%.

VA Home Loans

• VA is a 4% limitation towards prepaids, discount points and other sales concessions (such as debt payoff).  On a VA, the seller can pay unlimited closing costs (appraisal, title, recording, loan fee, etc). There are also certain fees the Veteran isn’t allowed to pay, be sure to check with your lender on current guidelines. It’s important to note VA home loans are for primary residences only.

FHA Home Loans

• FHA still allows for an IPC of 6% regardless of the down payment. It’s important to note FHA loans are for primary residences only.

USDA Home Loans

• USDA still allows for an IPC of 6% regardless of the down payment. It’s important to note FHA loans are for primary residences only.

When IPCs exceed these limits they are considered sales concessions. For underwriting and eligibility purposes, the lender must make a downward adjustment to the property’s sales price to reflect the amount of any contributions that exceed the maximum limits. The maximum LTV/CLTV ratios must then be calculated using the lesser of the reduced sales price or appraised value.When IPCs exceed these limits they are considered sales concessions.

Tags: 30 year mortgage, FHA, Mortgage Guidelines, Mortgage Rates

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Posted in FHA Mortgages HUD/FHA Mortgage Guidelines by Michael No Comments Yet