Whether you are working with a buyer or a seller, the topic of a seller-funded credit will most likely arise at some point during the process. There’s also a good chance the buyer wants the most they can get, while the seller doesn’t want to give anything away. Inevitably, the discussion will take place and it’s important to know the rules and guidelines around how a lender will view those credits.

First, let’s talk about lenders. Lenders work within the guidelines provided to them by Fannie Mae, Freddie Mac, FHA, VA or individual investors, and they all have rules around how much of a credit can be provided and what that credit can be used for. The maximum amount of the credit allowed will be calculated off of the purchase price of the home.  

While this article isn’t long enough to cover all of the scenarios, we have highlighted some of the more important characteristics that determine the maximum credit allowed and what that can be used for. Here are few things to keep in mind:

• The maximum amount will be based upon the type of loan (conventional, FHA, VA, non-conforming), the occupancy type, and the loan-to-value ratio.

• The seller credit can be used to cover any closing cost or prepaid item such as taxes, insurance or interest.

• The credit cannot be used towards the buyer’s downpayment – if your client needs downpayment assistance, we have programs to help with that like IHDA.

• The seller credit cannot be in excess of the actual closing costs and prepaids the buyer is responsible for — getting more than you need doesn’t actually help anyone.

• The credit cannot be written in the contract or addendums to cover repairs or decorating allowances.

Sounds like a lot to know, doesn’t it? Fortunately, we have developed a simplified chart to help you determine what your maximum allowable amount is. Check it out here!

The best option is to always talk to a Key Mortgage loan officer to discuss all of your client’s available options and help determine what’s best for them. When you work with Key, you strengthen your team of professionals and the value you bring to your clients!