Starting in the summer of 2010, the FHA (Federal Housing Administration) plans to reduce the maximum seller concession (a contribution that a seller could make to pay for a variety of services and taxes connected with a transaction) from 6% of the home price to 3% of the home price.
Let’s look at an example where you are buying a $200,000 home. Under current rules, the contract could be structured such that the seller pays closing costs, repairs, etc. up to 6% of the price of home or $12,000 in this case. Under the new regulations, this will now change to 3% of the price of the home or only $6,000.
Why the change? The FHA says the 6% exposes them to excess risk by creating incentives to inflate appraised values after sellers have agreed to pay the 6%, but after these costs have been tacked onto the final sales price of the home. Using our example above, the final home sales price would be $212,000 not $200,000. This new rule will affect the funds a buyer needs to purchase a home and close the transaction. So, check with your real estate agent and loan broker to make sure you understand the implications. Since FHA is involved in 9 out of 10 mortgages issued today, this change will probably affect most of us.
Source: Carole Rodoni Bamboo Consulting 8-10 Thank You Carole!