Does the 6% seller contribution limit inlclude the down payment?

My broker is stating FHA fees as follows:

3% needed for buyer down payment
1.5% needed for FHA Loan
500.00 seller processing fee on the Ameridream form the sellers sign.

We then have $3500.00 of closing costs / prepaids.

I have negotiated on the buyers behalf for the seller to pay all fees.

This puts us above the 6% of purchase price / seller concession limit, however, I always thought the 3% seller contribution for down payment was not included in the 6% limit.

Could someone verify??

........

The max contribution is 6% towards closing cost only. However if you are currently occupying the property and have been for at least one year with proof of payments and have a current lease, then FHA will let the Seller contribute towards your down payment. Otherwise you must have the minimum 3% down payment coming from your own account where it must have been for the past 60 days or the money can be a gift where the donor has to prove they have the money to gift with the fund being in their account for the past 60 days.

As far as the fees go those are always negotiable and are not set fees.

http://www.LoanDocReview.com

I want to point out that this is not an FHA policy. This is likely a lender guideline and not all lenders impose this.

The actual down payment requires on FHA per the 4155-1 R.5:

Maximum Loan-to-Value Percentages
(Purchase Transactions Only on Proposed and Existing Construction)

States with Average Closings Costs At or Below 2.1 Percent of Sales Price

• 98.75 percent: For properties with values/sales prices equal to or less than $50,000.

• 97.65 percent: For properties with values/sales prices in excess of $50,000 up to $125,000

• 97.15 percent: For properties with values/sales prices in excess of $125,000.

States with Average Closings Costs Above 2.1 Percent of Sales Price

• 98.75 percent: For properties with values/sales prices equal to or less than $50,000.

• 97.75 percent: For properties with values/sales prices in excess of $50,000.


So you have been brainwashed by the bankers telling you 3% dp.

Then the seller contribution limits:

A. Seller Contributions. The seller (or other interested third parties such as real estate agents, builders, developers, etc., or a combination of parties) may contribute up to six percent of the property's sales price toward the buyer's actual closing costs, prepaid expenses, discount points, and other financing concessions. Contributions exceeding six percent of the sales price or exceeding the actual cost of prepaid expenses, discounts points, and other financing concessions will be treated as inducements to purchase, thereby reducing the amount of the mortgage. Closing costs normally paid by the borrower are considered contributions if paid by the seller. Inducements to purchase are described in paragraph B, below.

The six percent limitation also includes seller payment for permanent and temporary interest rate buydowns and other payment supplements, payments of mortgage interest for fixed rate mortgages and GPMs only (but not principal), mortgage payment protection insurance, and payment of UFMIP.

Fees typically paid by the seller under local or state law, or local custom, such as real estate commissions, charges for pest inspections, fees paid for trustees to release a deed of trust, etc., are not considered contributions. The dollar limit for seller contributions is calculated by using Attachment A on the HUD-92900-PUR/HUD-92900WS. Each dollar exceeding FHA's six percent limit must be subtracted from the property's sales price before applying the appropriate LTV ratio.

So is the 3% seller contribution towards down pay included in the 6% seller contribution cap?

No it is not included in the 6% seller concession cap. So you can, in your own words, do a 6% concession towards closing costs and a 3% down payment assistance grant.

Use down payment assistance to only cover the gap between the loan amount and 100%. So for example:

Let's assume you are in a state where your closing costs average more than 2.1%

Loan exceeds 50k.

Your grant only has to be 2.25% However, per FHA guidelines it is not a concession and is not included in the 6% because it is money from a 3rd party grant.

Now for the most debated part of it all. A real estate agent and a seller would tell you that this is a seller concession.

The grant is money the seller does not receive in the purchase price the buyer pays them for the home.

FHA guidelines do not classify it as a concession because it is physical money from a 3rd party that is given at closing to pay for the down payment for the buyer in agreement with the seller to have that money refunded back to the gift provider. The fee for this service is included in the 6% cap but not the gift itself.

By law it is not a concession. But, an agent will tell you it is because the seller does not receive the money. This is simply a loop hole.

Greg, do you have a refrence site you could send me to. I've searched FHA .gov site, what a mess. Or, a guideline list that states the 3% down, even if contributed by the seller, is not part of the 6% cap.

I need this confirmed from the horses mouth. I appreciate all your insight.

What is the specific reason you want this?

I will have to search for that myself. But, a lender/investor can always choose to make it included in the 6%. They can always make the FHA guidelines more tough than they are in the 4155 and mortgagee letters. They just cannot do the opposite or it would be uninsurable.

Greg, the reason I ask is because my M. Broker is new at FHA loans. I have only done one in the past, and I swear the 3% seller contribution toward down pay was not included in the 6% seller concession cap.

There will be a lot more FHA loans going on in my area, so I would like to know for the future. I appreciate your help!

I doubt very much that the loan will get approved. HUD really frowns on Ameridream and are presently in litigation with them.

I am pretty windy but this is what I was trying to say. It is not included.

Loansman, seller paid down payment assistance is still accepted and the HUD ruling was overturned in the court that tried to abolish seller paid DPA. So yes you can still use it and it is acceptable.

We pump out about 20 FHA purchases a month and most are setup like this and use the DPA.

Greg,
HUD has agreed to grant Ameridream down payment assistance program relief from the effective date of rule untill February 29,2008. Provided that the home buyer has entered into a contract of sale (including any amendments to purchase price) on or before October 31, 2007 and FHA will recognize the gift.

It wasn't overturned, it was put on hold. There is more litigation to come.

That HUD ruling was in fact overturned and no longer in effect. DPA continues to be accepted until further notice. HUD did not give the judge a good enough reason to stop accepting something they have for many years.

HUD will continue to try and modify their policy on seller paid DPA with the judges approval.

Oh and the HUD rule was until 3/31/2008. But, again that was overturned.

DPA is done all day long.... for now!!

FHA requires 3% from the borrower... which can be a gift.... pretty simple.

Seller concessions CANNOT go towards down payment. But the seller can pay 6% towards costs.... + they can contribute to the DPA(who pays the down payment) on top of that.

Thanks guys. Sorry to disappear there for awhile.

My loan has become an absolute mess, that is another story.

According to everything I have been told, the DPA program can be used as long as there are 2 parties who have entered into a contract by the 29th of Feb..... as mentioned above.

Just what I was told.

Thanks for your help Greg, much appreciated.

Yeah you are going to find out that some investors will change they way they accept it merely because of the HUD attempt to change it.

So make sure you find another lender and be sure to Check and see what their guideline is.

Remember this. 6% concession + The 2.25%-2.75% down payment is acceptable to FHA.

That is the minimum for FHA to insure the loan.

It is not the LAW that the lender MUST adhere too. They can always make a guideline that is less risky to protect themselves.

Such as including the DPA in the 6% concessions.

Or NOT accepting DPA!

Well now, that makes me think of something else.

Is the 1.5% FHA funding fee normal?

Most of the UWs are kicking DPA deals because of HUD.

*****Personal attack removed*****

I do participate in L.O. forums. I am sure that is a great forum. I run with big dogs all the time but if all I did was run I would not get my loans closed

I do not claim to be perfect so if you can give me something more substantial to prove me incorrect on whatever you feel is nonsense then feel free to do so.

The FHA Up Front Mortgage Premium is charged on all FHA 203b/203k loans. Regardless of LTV.

*****Personal Attack Removed*****Greg is the reason most people even get a reply to there post. Don't start throw'in stones...

Thanks again Gregg.....

Adam have you see any FHA with DPA be turned down due to DPA?

Loansman, you should click "My Stuff" and then "My Messages" before posting anything else.

Loansman is a 17 year loan officer and has contributed some good posts on the forum.

I notice this newbie treatment in other topics a lot. Just because someone has 50 posts does not mean that they are quote: "fly by night"

Let's just try to keep it professional.

Loansman, sorry I deleted your post but I edited his too. Guys refrain from the personal attacks as mentioned in the forum FAQ.