How much is the legal down payment maximum seller contribution - 6%?


Well, 6% is the FHA-approved maximum seller contribution. However, different loan programs have different percentage of allowed seller-contribution and different rules will apply among lenders. The allowed seller assistance in percentage applies to the lesser of appraised value and home sales price.

Some Essential Guidelines Regarding Down Payment and Closing Costs Maximum Seller Contribution

The first and most important rule is that the homebuyer cannot receive direct funds from the seller-assisted transaction. That is, no cash back, no kickback. Seller-contributed funds have to be broken down and clearly stated on the mortgage loan papers and no obvious cash benefitting either the seller or buyer may be seen on the HUD-1. All, if any, financial agreements between seller and buyer must appear on the closing loan papers.

Also, in some mortgage programs allowing for down payment assistance seller contributed funds can't exceed closing costs.

VA home loans allow for 4% maximum seller assistance plus direct discount points.

FHA-insured mortgage loans allow for 6% maximum seller contribution. However, this is a recent increase from the recent 3% allowed maximum down payment assistance seller contribution. If you are using up the allowed 6% seller contributed funds, you are expected to supply 3% down payment of yourself, which is considered reduction of the mortgage loan amount.

Conventional loans usually allow:

  • 90% LTV, 3% maximum seller contribution;
  • 80% LTV, 6% maximum seller contribution;
  • 75% LTV and less, 9% seller contribution.

Maximum seller contributions should apply to specific loan-related costs - discount points, closing costs, furniture replacement and basic repairs, etc.

Anytime the approved and underwritten terms of the home loan change, the seller can't just write the buyer a check. Rather, any change in the agreed upon terms has to be reflected in the final loan agreement and approved by the underwriter again.

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