Asking for a seller credit is something you can put in an offer. What the seller can actually pay depends on the loan, and Fannie Mae’s rules set a ceiling that your lender has to check.
The ceilings
Fannie Mae calls these contributions interested party contributions. For a principal residence or second home, the maximum financing concession is 3% when the loan-to-value is above 90%, 6% from 75.01% to 90%, and 9% at 75% or less. The percentage is taken from the lower of the sales price or appraised value, not the loan amount. For an investment property it’s 2% at any ratio.
What it can pay for
Financing concessions are acceptable toward your closing costs and prepaids, and toward HOA assessments covering a period after settlement, limited to no more than 12 months. Fannie Mae doesn’t permit these contributions to fund the down payment, financial reserves or the minimum borrower contribution.
What counts as a sales concession
Cash gifts, rebates that aren’t credited to the transaction, furniture, automobiles, decorator allowances, moving costs and similar items are sales concessions. So is any financing concession above the ceiling. Sales concessions are deducted from the sales price, and the loan-to-value is recalculated on the reduced figure.
What falls outside the cap
Typical fees a seller pays under local custom aren’t subject to the maximum. A lender credit from premium pricing isn’t an interested party contribution either. Mortgages with undisclosed contributions, such as payments made outside closing that aren’t on the settlement statement, aren’t eligible for sale to Fannie Mae. Neither is a loan with a payment abatement, which includes HOA payments that run past 12 months.
Before you write the offer
These are Fannie Mae’s limits, so ask your lender which program your loan follows before you put a seller credit in writing. I’m Diana Kim, REALTOR with eXp Realty, working with buyers across Greater Boston in English and Korean. Send me your price and down payment and I’ll show you where the ceiling lands.
Questions
Common questions
How much can a seller contribute to my closing costs on a Fannie Mae loan?
For a principal residence or second home, 3% of the lower of the sales price or appraised value when loan-to-value is above 90%, 6% from 75.01% to 90%, and 9% at 75% or less. Investment properties are capped at 2%.
Can seller contributions pay my down payment?
No. Fannie Mae doesn't permit interested party contributions to fund the down payment, financial reserves or the minimum borrower contribution.
What happens if the seller credit is above the cap?
The amount over the ceiling is treated as a sales concession and deducted from the sales price, and the loan-to-value is recalculated on the reduced price.
Can the seller pay my HOA dues?
Yes, for a period after closing of no more than 12 months. Paying HOA fees for longer than 12 months is a payment abatement, and Fannie Mae won't buy loans with one.
Written by Diana Yeji Kim — REALTOR® at eXp Realty, serving Greater Boston in English, Korean, and Japanese.
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