Seller Contribution & FHA Guidelines
FHA loans have a number of the very stringent credit score and debt percentage requirements while offering borrowers a market interest rate in your home loan. FHA loans also have a minimal down payment requirement for just 3.5 percent of their sales cost of the home. Due to the low down payment and the ability for the seller to donate to the purchaser’s closing prices, FHA loans may allow the borrower reduced out-of-pocket expenses when buying a home.
Contribution
The seller may contribute up to 6 percent of the sales price or appraised value of the home, whichever is lower, toward the selling of the home. HUD proposed lowering the vendor’s contribution rate from 6 per cent to 3 percent in January 2010. As of August 2010, the rule still hadn’t been executed, but when you’re on the market for a new home, you should ask a lender about vendor contribution rules in the event of a shift.
Closing Prices
Seller contribution funds are used to pay the borrower’s closing costs, such as appraisal fee, legal fees and court filing fees. The contribution funds may also cover prepaid, or escrow, items such as real estate taxation and property insurance. Discount points paid to acquire a lower interest rate can also be considered closing costs and can be covered by seller contributions. Under no circumstances may vendor donations cover any portion of the payment. The entire down payment amount must be given from the debtor, either via use of personal funds or by talented funds.
Incentives
Seller incentives or inducements may consist of things such as painting or repair allowances paid to the buyer, moving prices paid and personal property as well as the sale of the home. While these items are not considered seller contributions, they do affect the vendor contribution limitations. The sales price or appraised value of the home must be reduced from the value of any vendor inducements. You calculate that the 6 percent vendor contribution limitation depending on the adjusted sales or appraisal cost after vendor inducement discounts.