Question:

What are the FHA seller contribution limits?

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FHA seller contribution limits are set at 6 percent of the value of a home or its selling price, depending on which is lower.

The U.S. department on Housing and Urban Development had earlier proposed to have this lowered to only 3 percent. As of this writing, that remains a proposal and the 6 percent limit is still in place.

What is the purpose of seller contributions?

These help the mortgage applicant pay for closing expenses like fees for appraisal, legal services and court filing. These may also be used by the borrower for other expenses like escrow, insurance premiums and property taxes, as well as prepaid costs.

What are the benefits of seller contributions?

  • To the homebuyer, contributions can lower the cost to buy the home. It can also make the purchase more faster.
  • To the seller, the property may be sold faster.

Can I use seller contribution for downpayment?

No. You are not allowed to do that. Down payments may come from the mortgage applicant's own funds, or, may come in the form of gifted funds.

Mortgage points that are purchased by the borrower to lower the interest rate on a home loan are also deemed as seller contributions.

How do I calculate the FHA seller contribution limit?

Get the selling price of the home or its appraised value (whichever is lower) and simply multiply it by 6 percent.

What are Seller Incentives?

The FHA allows the seller to offer the borrower inducements or incentives. These may include providing repair for the home or allowances to decorate the property. These may also include moving expenses and other personal properties included in the sale of the property.

These are not deemed as seller contributions. However, seller inducements or incentives have an impact on the 6 percent limit on seller contribution. The total amount of seller inducements or incentives will be deducted from the value of the home as appraised. The new home value will then be the basis for the 6 percent limit on seller contribution. Hence, the more inducements or incentives a seller provides, the lesser contribution will be allowed from the seller.

What seller inducements or incentives will have no effect on the seller contribution limit?

The FHA considers the following items as part of the property being sold:

  • Washers
  • Dryers
  • Refrigerators
  • Stoves

These items will not require an adjustment in the selling price of the home.

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