Navigating the 2% Seller Credit Limit

Rule

Lendency permits seller-paid costs, credits, or interested party contributions (IPCs) up to a maximum of 2% of the property's purchase price. Any amount exceeding this 2% threshold is classified as a "sales concession". This classification triggers a mandatory reduction in the property's cost basis, which is the value used to size your loan.

Lendency Insight

Investors often negotiate large seller credits to cover closing costs or buy down interest rates. While this preserves your cash-on-hand, a credit that is "too high" can ironically make your deal more expensive by shrinking your loan amount. For example, if you are buying a $500,000 property and negotiate a 4% credit ($20,000), the 2% overage ($10,000) is deducted from the purchase price for underwriting purposes. We then size your 80% Loan-to-Value (LTV) off $490,000 instead of $500,000, meaning you get $8,000 less in loan proceeds. In many cases, it is more mathematically beneficial to simply negotiate a lower purchase price than to take a massive credit that cuts into your leverage.

Common Scenarios & FAQs

  • What counts as an Interested Party Contribution? Any cost normally the responsibility of the purchaser that is paid by someone with a financial interest in the sale, such as the seller, the builder, or the real estate agent.

  • Do realtor commissions count toward the 2%? No. As long as the realtor fee is customary and reasonable for the market, it is not treated as a sales concession.

  • What can I use the 2% credit for? You can apply these funds toward origination fees, discount points, application fees, appraisal and credit report costs, prepaids, escrows, and title insurance.

  • Can the seller pay for my required reserves? No. Credits can be used for closing costs and prepaids, but they cannot be used to satisfy your liquid reserve requirements.

Key Definitions

  • Interested Party Contribution (IPC): A payment or credit provided by a party involved in the transaction (like the seller) to help cover the borrower's closing costs.

  • Sales Concession: The portion of an IPC that exceeds the allowed limit (2%), which the lender views as an artificial inflation of the purchase price.

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