How much can the Sellers contribute toward Buyers closing costs and pre-paid items?

John R. Thomas with Primary Residential Mortgage in Newark, Delaware will answer how much the seller can pay toward closing costs and pre-paid items based on the loan program being used.  If you have questions or would like to apply for a mortgage loan please call 302-703-0727 or you can APPLY ONLINE.

When a Buyer makes an offer to purchase a property, they can negotiate for the sellers to pay money toward closing costs and pre-paid items as long as it is written into the sales agreement.  On the Delaware Real Estate Sales Agreement, this is typically written into section 32 of the sales contract. A seller is allowed to pay money towards closing costs, prepaid items, and reserves.  The seller cannot, however, contribute toward the down payment.

The amount that is allowed to be paid by the seller is dependent on the loan program being used by the buyer and the amount of down payment.  The amount that can be contributed is a percentage of the sales price.  The guidelines per loan program are as follows:

Conventional Fannie Mae/Freddie Mac – Owner Occupied

• Less than 10% down payment = 3% allowed seller contribution
• Less Than 25% down payment up to 10% down payment = 6% allowed seller contribution
• 25% or more down payment by Buyer = Up to 9% of purchase price allowed seller contribution

Fannie Mae Homepath Loans – Owner Occupied Residences

25% down or more = 9% allowed contributions

Less than 25% down = 6% allowed seller contributions

Conventional: Fannie Mae / Freddie Mac: Second Home

• Less Than 25% down and up to 10% down = 6% allowed seller contributions
• 25% or more down payment = 9% allowed seller paid contributions

Conventional: Fannie Mae / Freddie Mac: Non-Owner Occupied Residence / Investors

• 2% Maximum Seller Paid Closing Costs no matter how much is put down

FHA Loans

• 6% Maximum Seller Paid Closing Costs
• Seller Contribution can be used to pay the upfront mortgage insurance premium

VA (Veteran) Loans

• Seller Can Pay all of the closing costs (no limit on paying closing costs)
• The seller can only pay up to 4% toward seller concession which would include discount points and non-allowable VA buyer fees.

USDA Rural Housing Loans

• No Limit Set by USDA on how much the seller can contribute towards closing costs and pre-paid items
• Seller Cannot pay more than actually costs
• If home appraisers higher than the purchase price, then the borrower can increase loan amount up to the amount of the closing costs that brings the loan to the appraised value.  So can roll the closing costs into the loan if the seller won’t pay and home appraises higher.

If you have more questions or would like to apply for a mortgage loan for the purchase or refinance in Delaware, Maryland, or Pennsylvania give us a call at 302-703-0727 or you can APPLY ONLINE.

John R. Thomas – NMLS 38783

Certified Mortgage Planner – Primary Residential Mortgage, Inc.

302-703-0727 DE Office / 610-906-3109 PA Office / 410-412-3319 MD Office

248 E Chestnut Hill Rd, Newark, DE 19713