Introduction

This topic contains information on the effect of contributions by interested third parties on calculating the maximum mortgage amount, including

Change Date

May 10, 2009

4155.1 2.A.3.a Definition: Third Party Contribution

A third party contribution is a payment by an interested third party, or a combination of parties, toward the borrower's costs to close.

Reference: For a more detailed definition of Third Party Contribution, see HUD 4155.1 9.

4155.1 2.A.3.b Interested Third Party Contribution Amounts

The third party may contribute up to 6 percent of the property's sales price toward the buyer's closing costs, prepaid expenses, discount points and other financing concessions.

The 6 percent limit also includes

Note: Contributions exceeding 6 percent are considered inducements to purchase.

Reference: For information on inducements to purchase, see HUD 4155.1 2.A.4.

4155.1 2.A.3.c Charges Not Considered Interested Third Party Contributions

Payment of real estate commissions or fees, typically paid by the seller under local or state law or local custom, are not considered an interested third party contribution.

4155.1 2.A.3.d Treatment of Amounts Exceeding Contribution Limit

Each dollar that exceeds the 6 percent limit discussed in HUD 4155.1 2.A.3.b must be subtracted from the property's sales price before applying the appropriate LTV ratio.

Reference: For information on the maximum LTV percentage on purchases for existing and proposed construction, see HUD 4155.1 2.A.2 b.