Quantcast

It’s true that you, the buyer, may not have to pay all your closing costs yourself. There are local down payment and closing cost assistance programs, but there are also possibilities for the seller to contribute as well. This is something you must negotiate.

FHA Loan Programs for 2022

The most recognized 3.5% down payment mortgage in the country. Affordable payments w/good credit.

Are You Watching Your Credit Score?

NOTICE: Some FHA mortgage lenders are substantially raising FICO score requirements during the Coronavirus crisis, even though FHA minimums remain unchanged.


- Improving Your Credit Score Has Never Been More Important -

Get started one
Get started two
Get started three
Get started four
FHA.com is a privately owned website, is not a government agency, and does not make loans.

Choose a Loan Type

FHA.com is a privately owned website, is not a government agency, and does not make loans.

FHA Loans and Third-Party Contributions

November 3, 2021

FHA Loans and Third-Party Contributions
It’s true that you, the buyer, may not have to pay all your closing costs yourself. There are local down payment and closing cost assistance programs (see your state government official site to find one near you) but there are also possibilities for the seller to contribute as well--something you must negotiate.

How much and to which areas can the third party contribute if you are buying a home with an FHA mortgage?

Down Payment Rules

Down payments are an important part of this discussion---that is because down payment funds are strictly regulated and must come from an approved source. What does “approved” mean? Simply that the lender must be able to investigate to make sure FHA loan rules have been followed.

Down payment contributions (which are completely separate from closing cost contributions) cannot come from what the FHA describes as “interested parties.”

Who are these people? They can, according to HUD 4000.1, include “sellers, real estate agents, builders, developers or other parties with an interest in the transaction.” But that does NOT mean these interested parties can contribute NOTHING. 

In some cases that may be true but where the seller is concerned? The money cannot come in the form of a down payment gift or other down payment assistance.

Six Percent Contributions

The seller is permitted to contribute up to six percent of the price of the home toward closing costs. But others may also contribute that six percent. HUD 4000.1 explains what interested parties may contribute:

Interested parties may contribute up to 6 percent of the sales price toward the Borrower’s origination fees, other closing costs and discount points. The 6 percent limit also includes:
 
  • Interested party payment for permanent and temporary interest rate buydowns, and other payment supplements
  • Payments of mortgage interest for fixed rate mortgages
  • Mortgage payment protection insurance
  • Payment of the UFMIP
It is worth repeating that down payments are specifically left off of that list. And what happens if that amount exceeds six percent?

“Interested Party Contributions that exceed actual origination fees, other closing costs, and discount points are considered an inducement to purchase. Interested Party Contributions exceeding 6 percent are considered an inducement to purchase.”

Inducements to Purchase

What is the consequence of exceeding the six percent restriction? FHA loan rules require the lender to reduce the amount of the loan dollar-for-dollar in such cases.

It is important to note that some payments are NOT considered to be interested party contributions and DO NOT count towards the limit of six percent. Third-party payment of real estate agent fees, commissions, or fees traditionally paid by a certain party to the loan transaction in that housing market--all of these are exempt from the six percent limitation.

------------------------------

RELATED VIDEOS:
Learn How to Meet FHA Requirements
A Few Tips About Your Fixed Rate Mortgage
Your Proof of Ownership Is the Property Title

SEE YOUR CREDIT SCORES   From All 3 Bureaus  

Do you know what's on your credit report?

Learn what your score means.


GET STARTED