February 24, 2012

FHA revises proposed seller concession limits

The Federal Housing Administration is revising last year's proposal for limiting seller concessions related to single-family residential mortgages it insures and is accepting comments from the public until March 26.

The FHA currently limits seller concessions to 6 percent of the lesser of the sales price or appraised value. Anything over that is considered an inducement to buy and is prohibited.

Last July, the agency proposed to cut the limit in half – to 3 percent – in a rule aimed at helping to restore the Mutual Mortgage Insurance Fund. It is modifying that proposal in response to some 900 comment letters received, most of which addressed the seller concessions.

The FHA is now proposing seller concession limits as follows:

  • Seller concessions are limited to 3 percent or $6,000, whichever is greater, of actual closing costs, except the limit remains at 6 percent with respect to HUD's Real Estate Owned homes and Neighborhood Stabilization programs.
  • Acceptable uses of seller concessions are limited to payments toward borrower closing costs, prepaid items, discount points, the FHA Up Front Mortgage Insurance Premium and any interest-rate buy-down. The concessions could not apply to homeowner or condominium association fees, mortgage interest payments and mortgage payment protection plans.

The FHA proposal was published in the Feb. 23 Federal Register.