How much can a seller contribute towards a buyer’s closing costs?
The amount of a buyer's closing costs a seller can pay depends on the type of loan the buyer is using. Here’s a general breakdown for each loan type and please consult your lender for actual figures for your specific situation:
Conventional Loans:
For conventional loans, the seller can contribute up to 3% of the purchase price if the buyer is putting down less than 10%. If the buyer's down payment is between 10% and 25%, the seller can contribute up to 6% of the purchase price. For a down payment of 25% or more, the seller can contribute up to 9%.
FHA Loans:
For FHA loans, the seller can contribute up to 6% of the purchase price toward the buyer’s closing costs. This can cover things like loan origination fees, title insurance, and prepaid taxes or insurance.
VA Loans:
For VA loans, the seller can pay up to 4% of the purchase price in closing costs and other concessions (like paying off the buyer’s debts or covering the buyer’s down payment). However, the seller is not allowed to pay certain fees, such as the buyer’s funding fee, unless they are agreed upon as part of the negotiations.
USDA Loans:
For USDA loans, the seller can contribute up to 6% of the purchase price toward the buyer's closing costs, which is similar to FHA loans.
Jumbo Loans:
For jumbo loans (loans that exceed conventional loan limits), the seller’s contribution may vary, but typically it is up to 3% of the purchase price, though it depends on the lender's guidelines and the buyer’s down payment amount.
Important Notes:
- Seller contributions must be used for actual closing costs and cannot be applied toward the buyer's down payment unless specified by the lender.
- These percentages may vary depending on the specific lender's policies and the buyer's circumstances, so it’s always best to confirm with the lender.
In many cases, seller contributions can help reduce the buyer’s out-of-pocket expenses at closing, making it easier for the buyer to complete the transaction.