FHA loans are a popular loan program among many homebuyers in California and Texas who need seller credits to offset their closing costs. FHA loans are also popular with first-time homebuyers and homebuyers with limited funds for a down payment.
How Do Sellers Pay For Buyer’s Closing Costs?
The Department of Housing and Urban Development (HUD) sets the guidelines and regulations for FHA loans. This includes how seller credits can be used towards closing costs.
HUD’s guidelines state that interested parties (E.G., sellers, real estate agents, builders, developers, or other parties with interest in the transaction), can contribute funds that are up to 6% of the purchase price towards the homebuyer’s origination fees, closing costs, and discount points.
Any contributions that are over 6% are considered “inducement to purchase” and are only allowed in dollar-for-dollar price reductions.
Can Seller Credits Pay for the Down Payment?
Homebuyers in California and Texas cannot have sellers provide funds for the down payments on their FHA loans. Down payments are considered “minimum required investment (MRI),” and cannot be paid for by interested party contributions.
This means that sellers cannot contribute money to the homebuyer’s down payment when an FHA loan is used to finance the purchase.
How Likely Are Buyers to Get Seller Credits for Closing Costs?
While sellers can contribute credits towards the buyer’s FHA closing costs, they are not required to provide them. Seller contributions are more likely to happen in a buyer’s market. In hot markets with lots of competition for home sales, sellers are less inclined to pay for the homebuyer’s closing costs.
That does not mean buyers cannot ask for the seller to pay some or all their closing costs. It just means that the current state of the market will affect their willingness to do so. Real estate agents and local lenders, like JVM Lending, have their pulse on the current state of the market and can provide the best advice on how, and when, to negotiate seller credits.
Contact JVM Lending
This blog covers the very basics of how homebuyers can utilize seller credits for FHA closing costs. To learn more about FHA loans, closing costs, and how you can negotiate seller credits, contact our expert team of Mortgage Analysts by phone at (855) 855-4491 or by email at [email protected].