FHA concessions on seller concessions?
3 percent ceiling is likely 'off the table'
BY KEN HARNEY, TUESDAY, MARCH 1, 2011.There's some good news brewing at the U.S. Housing and Urban Development Department that could save thousands of home sales in the months ahead. The final details aren't fully nailed down and a formal announcement is still more than a month away, but I can tell you about a broad outline taking shape that isn't likely to change.
It's all about seller concessions.
Last year the Federal Housing Administration announced that it intends to slash maximum seller contributions from 6 percent to 3 percent for purchasers using FHA-insured mortgages. Seller concessions or contributions are essential lubricants that make large numbers of FHA-financed home sales flow smoothly to closing. They make otherwise unaffordable deals doable.
Say you're negotiating on a house and the seller absolutely insists on getting a price of $150,000. Perhaps the buyer has struggled to come up with down-payment money and won't have the additional cash resources to pay for the settlement and loan origination expenses, which average about 4 to 5 percent in your area.
Under long-standing FHA rules, your seller is allowed to contribute money from the sale proceeds to help with your closing costs. A 6 percent contributions cap -- the current rule -- allows your seller to put as much as $9,000 into the pot, which would be more than enough to handle your closing costs and prepaids.
But a 3 percent ceiling -- the one HUD proposed last year -- would reduce that to $4,500, leaving you short and endangering the entire deal. A 3 percent cap would also make FHA's standard the same as what's typical in the conventional loan market, where both Fannie Mae and Freddie Mac permit nothing beyond that limit.
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