How Much Can The Seller Contribute?
It used to be fairly safe to tell buyers that the maximum contribution that a seller could make toward the buyer’s closing costs was 3%. Unfortunately, this is no longer the case. Here’s where we currently stand:
- FHA is 6% regardless of down payment.
- Conventional is 3% if the down payment is less than 10%, 6% if the down payment is 10% or more but less than 25% and finally, 9% if the down payment is 25% or more
- For jumbo loans, if the down payment is less than 20%, the maximum contribution is 3% and if the down payment is 20% or more, the max is 6%.
- For VA loans, the seller can pay all non-recurring costs and up to 4% for anything else.
- If you are purchasing investment property, the maximum amount that can be paid is simply 2%.
Many folks are not aware of the last bullet and, often, contracts are written up with excess contributions that need to be corrected prior to loan submission. Keep in mind that these contributions can only be for acceptable closing costs and pre-paid expenses. More on that later.