March 12, 2013
In 2010, the FHA announced it was considering a new rule to cap seller concessions or contributions at a lower rate–reducing those concessions from 6% to 3%. That rule was not implemented, but in 2012 the seller concession cap was revisited once more.
According to an FHA mortgagee letter found on the FHA/HUD official site, “In a separate Federal Register notice to be published soon, the FHA will propose to reduce the maximum allowable seller concession from its current level to one more in line with industry norms. The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. The revised proposal reflects public comments received on an earlier proposal published in a Federal Register notice on July, 15, 2010. The revised proposal calls for a 30 day comment period. Following an analysis of the public comments received, a final rule will be issued.”
What happened to this proposal?
According to the Federal Register, Volume 77 No. 36 published in 2012, the agency was seeking public comments and was expected to publish a final rule after that comment period. But a quick check of the FHA loan rulebook, HUD 4155.1, shows that the six percent cap is still in place at the time of this writing.
“The seller and/or third party may contribute up to six percent of the lesser of the property’s sales price or the appraised value toward the buyer’s closing costs, prepaid expenses, discount points and other financing concessions.”
The six percent limit also includes third party payment for permanent and temporary interest rate buydowns, plus “other payment supplements” The contributions can also include payments of mortgage interest for fixed rate mortgages, mortgage payment protection insurance, and payment of UFMIP.
FHA loan rules are careful to point out, “Contributions exceeding six percent are considered inducements to purchase.”
As you can see, the six percent cap has not been reduced at the time of this writing according to Chapter 2, Section A of HUD 4155.1 found on the FHA official site. For more information on these rules and proposed changes to them, contact the FHA directly or ask your loan officer.
Do you have questions about FHA home loans or FHA refinance loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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