Interested Party Contributions-FHA and Conventional Loans- there are limited amounts for each type of mortgage loan
Interested party contributions are costs (closing costs for the loan) that are normally the responsibility of the individual (s) who is purchasing the property. If some of these costs are paid directly or indirectly by someone who has a financial interest in or can influence the terms, sale, or transfer of the subject property, the costs are called Interest Party Contributions.
Interested parties to a transaction include but are not limited to, the seller of the property, the builder/developer, the real estate agent or broker, or an affiliate who may benefit from the sale of the property. Usually dedicated to getting the highest price.
It is important to note that a Lender or Employer- is not considered an interested party. Unless of course, there was contractual interest in the transaction.
These contributions are normally also referred to as; sales concessions or financing concessions.
Interested Party Contribution – FHA (HUD)
HUD’s Definition: Interested Parties refer to sellers, real estate agents, builders, developers, Mortgagees-Third Party Originators (TPO), or other parties with an interest in the transaction.
- The Interested Party Contribution/seller concessions or sales concessions; refers to a payment by the party or combination of parties, toward the purchaser/borrower’s origination fees, other closing costs, prepaid items, and discount points.
- The Interested Parties may contribute up to 6 percent of the sales /purchase price toward the borrower’s origination fees, other closing costs, prepaid items, and discount points.
- The 6 percent limit also includes:
• Interested Party payment for permanent and temporary interest rate
buydowns, and other payment supplements;
• payments of mortgage interest for fixed-rate Mortgages;
• Mortgage Payment protection insurance; and
• payment of the UFMIP
Interested Party Contributions that exceed actual origination fees, other closing
costs, prepaid items, and discount points are considered an inducement to
purchase. Interested Party Contributions exceeding 6 percent are considered an
inducement to purchase.
These sales concessions/interest party contributions may not be considered for any of the purchaser’s minimum required investments (MRI). On FHA (HUD) loans, the borrower must have an MRI of at least 3.500% points.
These Borrower’s MRI funds, however, may be gifted from a reliable source such as:
- family
- employer
- a close friend with a proven long-term relationship
- a charitable organization
- a government agency that offers programs that provides help for low to medium-income applicants, or first-time homebuyer
- *Please note there are restrictions to gift funds available from the person gifting the funds. *Some requirements for Gift Funds
Interested Party Contributions-Conventional Loans- Fannie Mae/FNMA GSE
*Most lenders follow the guidelines of Fannie Mae or Freddie Mac for Conventional Lending. They then sell the loan to the one per the guidelines they used to originate and close the loan. *Their guidelines differ in some respect.
The meaning of Interested Party Contributions is considered Sales Concessions or Financing Concessions in conventional lending and the same as FHA’s.
These Are The Considerations That FNMA Uses and considers as concessions…
- Any money that is donated from a third party, while then also providing the money to pay some or all of the closing costs for a transaction.
- Funds that are paid directly from the interested party to the borrower.
- Monies that come to the transaction on the borrower’s behalf from an interested party including a third-party organization or nonprofit agency program.
- Money that flows from an interested party through a third-party organization, including nonprofits to the borrower.
If a lender credit exists and it is associated with premium pricing it is not part of an Interested Part Concession. This is true even if the lender is an interested party in the loan transaction.
The borrower’s down payment or (reserve requirement -if applicable) is not permitted within the interested party contributions. In other words, the borrower must have their own funds for closing the transaction for their down payment (MRI) and reserves.
*We always try to keep up with the latest guidelines, however, changes occur frequently and at the drop of a hat. Please always confirm with your lender of choice.
