The up-front mortgage insurance premium of FHA loans went from 1.75% to 2.25%. FHA announced that it was reducing the seller allowance from 6% to 3% earlier this year, but they have not announced a date that it will go into effect. However, fellow agents, this is a window of opportunity for you to start talking to buyers and sellers while they still exist.
If a seller does not want to give the maximum, they can still offer more than the proposed 3%. Some sellers may even agree to 4% or more. These allowances can be promoted on the Internet, at open houses, in MLS, on property flyers, and anywhere else to attract the attention of buyers.
Even if a seller has not committed to pay the financing allowances, the buyer can still negotiate with them in their purchase offer. The allowances can be used to pay for buyers' closing costs, buy down the interest rate, pre-paid items, or a combination of the three.
In extreme cases, when the seller is willing to pay 6% financing allowances, a buyer can apply it to a 3/2/1 buy down, where the payments in the first year are 3% less than the note rate, 2% less the second year, and 1% less the third year; leaving around 2% to be applied to the buyers' closing costs.
This is an FHA standard program. Conventional and VA loans also allow financing allowances, but the maximum amounts are limited to 4% and 3%, respectively. Every mortgage company is able to provide these types of loans. However, some choose not to. Now, real estate professionals can use this information to help them understand this opportunity.