It is not uncommon for real estate agents, mortgage loan
officers, buyers and sellers to inquire as to how much the
seller is allowed to pay in contributions on a conventional
mortgage loan in Georgia. Any closing costs that are
normally paid by the borrower are considered contributions
if they are not paid by the borrower. The seller, builder,
developer, real estate agent or any other interested party
to the transaction, including any affiliates, may pay these
contributions.
The maximum allowable contributions from interested parties
are based upon the lesser of the purchase price or
appraised value, property type and the down payment amount.
Primary residences and second homes with less than 10% down
allow contributions of 3%. If the buyer pays between 10 and
25% down the contributions are limited to 6%. Down payments
of more than 25% allows contributions up to 9% on
conforming loan amounts but non-conforming loans are
limited to 6%. The maximum contribution is 6% for
conforming 80/20 and 90/10 on primary residence and second
home financing.
The contribution on investment properties is limited to 2%
regardless of amount paid down.
Contributions toward any of the following are included in
the maximum allowable limits:
1. Closing Costs
2. Discount points
3. Commitment fees
4. Origination Fees
5. Mortgage insurance premium
6. Discount Points for temporarily or permanently lower the
borrowers monthly payment or interest rate.
7. Any other transfer charges normally paid by the
borrower, e.g., transfer taxes, tax stamps, title
insurance, surveys, appraisal, and recording and attorney
fees.
8. Homeowner association fees for future dues.
If there are excess contributions, a downward adjustment to
the property's sales price must be made to reflect the
amount of any contributions that exceed the maximum
contribution limits. The LTV/TLTV ratio must then be
calculated based upon the lesser of the reduced sales price
or the appraised value.
The cost of any personal property, e.g., furniture,
decorator items, automobiles or other "giveaways", must
always be deducted from the property's sales price
regardless of the amount of any other contributions.
A cash credit, cash rebate, incentive or
inducement/enticement to purchase from the seller, builder,
or developer must also always be deducted from the
property's sales price. Examples may include but are not
limited to: excessive marketing costs, commissions, or
seller financing at below market interest rates.
A new LTV/TLTV must be calculated whenever the property's
sales price is reduced. The LTV/TLTV is based on the lesser
of the adjusted sales price or the appraised value.
Personal Property Exception
Typically, a short list of personal property may come with
a house. Most built-in appliances (such as stove,
refrigerator, dishwasher), window coverings and carpeting,
are usually considered to be fixtures so no adjustment to
the purchase price is needed.
Sometimes personal property may be left for convenience and
has minimal value (e.g., pool cleaning equipment, lawn
mowers, picnic tables and patio sets). Generally, if
personal property equals less than 2% of the value of the
property or has a value of less than $500 it is not
considered a contribution.
You can see how important it is that Loan Officers and Real
Estate Agents understand the limits of concessions. Sales
contracts and mortgage loans should be structured
accordingly. A lack of training on our part can cause
major frustration for the buyer and seller.
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Jerry Sanders understands how critical it is for every
professional in a real estate transaction to be trained in
all aspects so contracts and mortgages can be structured
properly. Jerry owns a Georgia Mortgage Company and can be
reached from his web site at: http://www.peachstatemtg.com
Contact him today for assistance.
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