Interested Party Contributions
Seller paid costs fall within a broader category of real estate related funds called interested party contributions or IPCs. These costs are contributions that incentivize the home buyer to buy that particular home. IPCs are ok up to a certain dollar amount, but above that they are not allowed.
Who is considered an interested party? Your real estate agent, the home builder, and of course the home seller. Even funds from down payment assistance programs are considered IPCs if the funds originate from the seller and run through a non-profit.
Anyone who might benefit from the sale of the home is considered an interested party, and their contribution to the buyer is limited.
USDA Seller Contributions
USDA loans guidelines state that the seller may contribute up to 6% of the sales price toward the buyer’s reasonable closing costs.
Contributing as a FHA Seller
For all FHA Loans, the seller and other interested parties can contribute up to 6% of the sales price or toward closing costs, prepaid expenses, discount points, and other closing costs.
If the appraised home value is less than the purchase price, the seller may contribute 6% of the value.
Maximum Continbution of the VA Loan Seller
The seller may contribute up to 4% of the sale price, plus reasonable and customary loan costs on VA home loans. Total contributions may exceed 4% because standard closing costs do not count toward the total.
According to VA guidelines, the 4% rule only applies to items such as:
- Payment of the VA funding fee
- Appliances and other gifts from the builder
- Payoff of the buyer’s judgments and debts
- Prepayment of property taxes and insurance
- Discount points above 2% of the loan amount
- Payment of the VA funding fee
For instance, a buyer’s core closing costs for things like appraisal, loan origination and title equal 2% of the purchase price. The seller agrees to prepay taxes, insurance, the VA funding fee, and a credit card balance equal to 3% of the sales price.
This 5% contribution would be allowed because 2% is going toward bona fide loan closing costs.
What are Undisclosed IPCs?
Mortgages with undisclosed IPCs are not eligible for delivery to Fannie Mae. Examples of these types of contributions include, but are not limited to, moving expenses, payment of various fees on the borrower’s behalf, “silent” second mortgages held by the property seller, and other contributions that are given to the borrower outside of closing and are not disclosed on the settlement statement.
What are assistance programs for Down Payment?
Funds that are donated to third parties which are then applied toward some or all of the borrower’s closing costs for a specific transaction are sometimes referred to as Down Payment Assistance Programs (DAPs). As long as the DAP allows such uses, these funds may also be used to pay for energy-related improvements that meet the requirements described in B5-3.3-01, HomeStyle Energy for Improvements on Existing Properties. IPC funds that flow through a DAP may be used for allowable closing costs, prepaids, and energy-related expenses in compliance with Fannie Mae’s IPC limits.
Types of Interested Party Contributions (IPCs) is available in the following areas/cities
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