Can the Seller Contribute to Closing Costs?

Yes, the seller can contribute to the buyer's closing costs and more in many cases. The next question that comes to mind that I'm sure your wondering is; "How much can the seller contribute to the buyer in a home sale?" The answer to that question isn't so easy and my answer would be it depends. According to Fannie Mae guidelines we have to determine a few things.

First, is the property an investment property, primary residence, or secondary residence?

IN RI

Second, after the contribution, what is your loan to value ratio going to be? i.e. 70, 80, 90%

After we answer those two questions we can refer to Fannie Mae guidelines, which state the following:

The maximum allowable contributions that interested parties may make for a conventional mortgage are limited to:

two percent of the lesser of the property's sales price or appraised value for a mortgage secured by an investment property;

three percent of the lesser of the property's sales price or appraised value for a mortgage secured by a principal residence or second home, if the loan-to-value ratio (or, if applicable, the combined loan-to-value ratio) is greater than 90 percent;

six percent of the lesser of the property's sales price or appraised value for a mortgage secured by a principal residence or second home, if the loan-to-value ratio (or, if applicable, the combined loan-to-value ratio) is in the range from 76 percent to 90 percent; or

nine percent of the lesser of the property's sales price or appraised value for a mortgage secured by a principal residence or second home, if the loan-to-value ratio (or, if applicable, the combined loan-to-value ratio) is 75 percent or less

As you can see, the answer varies somewhat depending on the situation. Some of you may now be asking; "What about Undisclosed Seller Contributions?" My answer to that would be under Fannie Mae guidelines undisclosed seller contributions such as moving expenses, silent mortgages, abatements and other various fees paid by the seller are not allowed. Therefore your interest rate will be higher, because you will have to be financed into a non-conforming loan and pay a higher interest rate.

Can the Seller Contribute to Closing Costs?

Michael Hutchins is a mortgage finance professional with extensive experience in mortgage consultation, construction finance, and financial management. For more information or to apply for a mortgage you can reach Mike by going to [http://activerain.com/mhutchins]

IN RI