Maximum Seller Contribution

By
Mortgage and Lending with Atlantic Bay Mortgage Group

What is the maximum seller contribution on the purchase of a home?

In today's market, it is very common for a seller to pay some, if not all, of the buyer's closing costs.  Well, how much can the seller actually contribute?  Of course, that depends on the type of loan, and a few other factors too.  It's important that the seller contribution is not too much or too little, so here are a few guidelines to consider:

Maximum Seller Contribution:

 Maximum Seller Contribution

There are three main types of loan programs, FHA, VA, and Conventional.

On an FHA loan, the seller can pay up to 6% of the sales price towards closing costs (not of the loan amount, but 6% of the sales price).  This can be applied towards closing costs and prepaids (taxes & insurance), but should stated as such in the sales contract "closing costs and prepaids at buyer's discretion."

On a VA loan, the seller can pay all closing costs, all prepaids, AND 4% of the sales price towards either points (to lower the interest rate), or to pay off buyer's debts.  Many buyers and real estate agents are not aware of the 4% addition, so on a $200,000 sales price, the seller can pay all closing costs & prepaids, and an extra $8,000 to pay off buyers debts (which may in turn help them qualify for that home).

On a Conventional loan, it just depends on the down payment.  With 5% down (on a primary residence), it's 3% of the sales price, and 10% down it's 6% of the sales price (and with 25% down, it would be 9% of the sales price, which is a very rare occurrence).  On all investment properties though, regardless of down payment, maximum seller contribution is limited to 2% of the sales price.

To summarize maximum seller contribution, FHA is 6%, VA is all (plus 4% towards points and debts), and Conventional is 3% with less than 10% down, and 6% with 10-25% down.

Maximum Seller Contribution

Maximum Seller Contribution - Randy DeMille with Atlantic Bay Mortgage Group.


-Randy DeMille with Atlantic Bay Mortgage Group
-May 2011

 Randy DeMille

Please note that the mortgage industry guidelines change at any given moment, and that the information in this article is subject to change.

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Randy DeMille
(757) 222-4904
Atlantic Bay Mortgage Group
2540 Virginia Beach Boulevard
Virginia Beach, VA. 23452
randydemille@atlanticbay.com

Randy DeMille

Randy DeMille is licensed to originate mortgage loans in Virginia and North Carolina.
Atlantic Bay Mortgage Group is an Equal Housing Lender and is licensed by the Virginia State Corporation Commission, License #MC-936, NMLS# 72043.
Randall "Randy" F. DeMille, NMLS# 112145. 

 

Comments (2)

Drick Ward Property Management / Broker Assoc
NEPTUNE REALTY - Virginia Beach, VA
"RealtorDrick" - Experienced Representation

Great info Randy, thanks for sharing your knowledge and experience.  You are indeed a trusted source in our market.

May 05, 2011 01:33 AM
Randy DeMille
Atlantic Bay Mortgage Group - Virginia Beach, VA

Also, if you have a rural-designated property, you should look at a USDA loan, which allows for 100% financing and does not have mortgage insurance.  The maximum contribution on a USDA loan is 6% of the sales price (regardless of down payment).

May 05, 2011 04:03 AM