Over the past few weeks, I have been deep in negotiations for both buyers and sellers and have had alot of questions about how much $$ a seller can truly contribute to closing costs for a buyer. So, I went to my favorite lender, Geoff Brown with New American Mortgage to find out the details.....
Here is what he has to share:
How much can the seller contribute towards the closing costs of a buyer? This has become increasingly important in today’s lending landscape where many clients have pulled together the money for down payment but don’t have the additional funds for closing costs, prepaids and establishing the escrow account.
I get this question frequently from real estate professionals and it’s because it can be somewhat complicated - depends on the loan program and amount of down payment. If negotiated into the offer to purchase agreement, a Seller may agree to pay the following towards closing costs, prepaids, and reserves/escrow account:
FHA:
- 6% maximum seller contribution. Seller contributions CAN include the upfront mortgage insurance premium. There has been a lot of rumors that the seller contribution is going to be reduced. This is not true and has not happened.
USDA:
- No limit to how much sellers can contribute.
VA:
- 4% closing cost contribution. Also, buyer cannot pay for termite fee and the seller must pay for this and not part of seller paid closing costs.
Conventional: Owner Occupied
- 25% or more down payment = 9% allowed seller contribution
- 10% down but less than 25% down = 6% allowed seller contribution
- less than 10% down payment = 3% allowed seller contribution
Conventional: Second Home
- 25% or more down payment = 9% allowed seller contribution
- 10% down and less than 25% down = 6% allowed seller contribution
Conventional: Non-Owner Occupied/Investment
- 2% maximum seller contribution
The seller cannot contribute towards the down payment for a buyer and if any money is left over, it can’t be used! The only time I've seen issues with closing costs contributions is when it has not been communicated to the lender upfront. If you are a buyer that is going to make an offer, please contact me today to get prequalified and so we can strategize on the closings costs if you are going to ask on behalf of the seller so we can all be on the “same page”.
Geoff Brown can be reached at geoff.brown@newamerican.com or 704-728-6286. This was a very helpful message that I think that all sellers, buyers and Realtors can learn from!! Thanks Geoff!!
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