FHA Proposes Lower Allowable Seller Paid Concessions

On February 23rd, FHA proposed that the maximum amount that a seller or other interested third party can pay toward a buyer’s costs at closing (to include closing costs, prepaid items, discount points, up-front MIP, and any interest rate buydown) be reduced from 6% to 3% or $6000, whichever is greater.  At first glance, this appears to be bad news because of how important it is to minimize an FHA buyer’s cash out of pocket.  On lower-priced homes, a buyer’s costs will always exceed 3%, thus, lowering the limit will only have the net effect of reducing the number of eligible FHA buyers that are out there.  Although this is true, once you take a closer look at the proposal, there is actually some very good news that should be celebrated, and here’s why.

FHA first submitted a proposal on this topic on July 15, 2010 which called for a reduction of the maximum seller paid concession from 6% to 3%.  The good news is that the new proposal allows for an overriding $6000 cap on top of the 3%.  The $6000 limit equals a 3% cap on a $200,000 home, but increases to a 4% cap on a $150,000 home, a 6% cap on a $100,000 home, and an 8% on a $75,000 home!  Thus, FHA has actually increased the cap for prices under $100,000!   

Kudos to FHA for adequately addressing the major concern of its initial proposal and landing on a compromise which will enable a seller to still contribute the majority, if not all, of a buyer’s costs on lower-priced FHA loans.  It is worth noting that the seller can only contribute toward actual costs and not over and above.

FHA is currently taking comments on this proposal through Mar 26th.  Click here to submit your comments on the reduction of seller concessions

March 6, 2012 by · Leave a Comment

About James

James A. Williamson is currently the Sr VP of Sales Development for Shelter Lending Services (formerly Fairfield Mortgage). James joined Shelter in 1994 and was the company's top Loan Officer in GA for 20 straight years helping over 2500 families finance their homes. James now oversees an incredible group of Loan Officers in Atlanta while further building Shelter's Atlanta business.

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