THE MORTGAGE BROTHERS SHOW
Seller Concessions – What can they be used for and what are their limits?
Seller Concessions are also known as ‘3rd Party Contributions’
Who is a typical interested party in a purchase transaction? Sellers, Buyer Agents and Listing Agents are 3rd party contributions.
3rd party contributions are allowed on purchase transactions but can only be applied toward closing costs and prepaids.
3rd party contributions cannot be applied toward Down Payment
Contribution limits apply to any and all 3rd party contributors as an aggregate limit. So, if seller and buyer agent are giving a contribution, the total of their contributions cannot be more than the MAX limits.
We discuss the importance of not having too much 3rd party contributions because of running the risk of leaving money on the table. It is not easy for a lender to estimate exactly what total costs will be because of title aggregate adjustments and seller prorations for taxes, interest, and insurance. We like to be conservative in our number
– FHA loans have is 6% contribution limit no matter what down payment amount
– VA loans have is 4% contribution limit no matter what down payment amount
– Conventional loans on primary and 2nd homes with 10% down or less – MAX is 3% contribution
– Conventional loans on primary and 2nd homes with 10%-25% down – MAX is 6% contribution
– Conventional loans on investment properties on any loan – MAX is 2% contribution