Question:

How is FHA seller contribution regulated?

Answer:

On the whole, approved HUD/FHA seller contribution is limited to 3% direct funding plus closing costs, which amounts to up to 6% of the sales price. As of April 2008, there is a HUD/FHA statement expressing the agency's concern about seller-funded downpayments.

HUD/FHA generally approve of down payment assistance when it comes from family, friends, government or charity sources. However, they firmly disapprove of any down payment assistance funds that benefit any party in the purchase transaction.

HUD assume, following statistical data, that borrowers accepting down payment assistance funds in excess of 6% and from other than the abovementioned sources can be hurt in a home purchase transaction, as they might be taking a loan amount exceeding their needs and are in greater danger of being foreclosed upon.

HUD/FHA have taken steps to legally restrict seller-funded contribution but as of now, no rule has been implemented because of court action. The FHA proposed rule on seller-funded downpayment contribution currently has a court ban against it.

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