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FHA loan rules in the FHA Handbook limit the contributions of an interested party, who may be the seller or any other person or party who wants to contribute to closing costs. These contributions are limited to a maximum of six percent of the sale price of the home.

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When the Seller Wants to Help Pay Your FHA Closing Costs

When the Seller Wants to Help Pay Your FHA Closing Costs
June 12, 2017 - There is a standard practice that some home loan transactions feature called “seller contributions”. That term refers to a situation where the seller wants to make the sale more attractive to the buyer by offering to pay or help pay for some of the closing costs on the mortgage. 

When this option is brought up in association with an FHA mortgage loan, a rule is usually also mentioned-the “six percent rule” that is an FHA regulation that limits the amount a seller may contribute to these costs. 

FHA loan rules in HUD 4000.1 limit the contributions of an “interested party”, who may be the seller or any other person or party who wants to contribute to FHA closing costs. These contributions are limited to a maximum of six percent of the sale price of the home. The “six percent rule” can be found on page 232 of HUD 4000.1, which defines “interested party” or parties as follows: 

“Interested Parties refer to sellers, real estate agents, builders, developers or other parties with an interest in the transaction. Interested Party Contribution refers to a payment by an Interested Party, or combination of parties, toward the Borrower’s origination fees, other closing costs and discount points.”

 The six percent rule itself is defined in HUD 4000.1 as follows: 

“Interested Parties may contribute up to 6 percent of the sales price toward the Borrower’s origination fees, other closing costs and discount points.”

Those contributions may include the following: 
  • 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; and
  • payment of the Up Front Mortgage Insurance Premium.
Some fees or expenses may be exempt from this six percent rule. These payments would be allowed but not added into the six percent. “Payment of real estate agent commissions or fees, typically paid by the seller under local or state law, or local custom, is not considered an Interested Party Contribution. The satisfaction of a PACE lien or obligation against the Property by the property owner is not considered an Interested Party Contribution.” 

Lender standards and state law may also have a say how these contributions are handled. Discuss your circumstances with a loan officer to see what may apply in your state.

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