Can the Seller Pay for FHA Home Loan Expenses?
Is it true that the FHA allows the seller to pay closing costs, supply appliances, or add other incentives to the sales agreement?
FHA loan rules in HUD 4155.1 state the seller may do so with certain limitations. Chapter Two of HUD 4155.1 has the specifics:
“Certain expenses paid by the seller and/or another interested third party on behalf of the borrower are considered “inducements to purchase” and result in a dollar-for-dollar reduction to the lesser of the sales price or appraised value of the property before applying the appropriate loan-to-value (LTV) factor.”
According to HUD 4155.1, the seller would be allowed to contribute up to six percent of the sales price of the property without a penalty. Sellers may also contribute the actual cost of certain expenses, and even purchase discount points on behalf of the borrower.
The seller cannot contribute toward certain expenses or contribute beyond a set limit–without a penalty that results in a dollar-for-dollar reduction in the FHA loan amount for the borrower. According to Chapter Two those contributions/expenses include:
- contributions exceeding 6% of the sales price
- contributions exceeding the actual cost of prepaid expenses, discount points, and other financing concessions
- decorating allowances
- repair allowances
- moving costs, and
- other costs as determined by the appropriate Homeownership Center.”
FHA loan rules add that a dollar-for-dollar, “sales price reduction is also required for
- excess rent credit, as described in HUD 4155.1 5.B.6.f, and
- gift funds not meeting the requirements described in HUD 4155.1 5.B.5.”
Speak to a loan officer for more information about these rules and requirements.
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