Lender: "Seller can't contribute more than 2% towards closing..."

[Justin B.]

So I'm buying my first rental property (actually closing this afternoon, :)!! ) and my lender tells me last week that the underwriter has approved the loan, however, because of the loan amount and it being an investment property, the seller can not contribute any more than 2% of the price of the house toward closing costs. Naturally I became irate since I worked the total amount of the closing cost to be paid by the seller into the contract. When I asked the lender, she said these were Fannie Mae rules, tough. The solution was to ask the seller to simply lower they price of the house by the difference but it could have turned out differently he wasn't a gentleman.  

My questions are:

1) Why is there such a rule in place? Why does the bank care where the money originates? The first thought that came to my mind was that I was being punished for being an investor.

2) Is this such a common occurrence that I will only be able to count on a 2% seller contribution for all future negotiations. 

Thanks, Justin

[Michael Smith]

Hi Justin Bundrick yes this is a FNMA guideline. If the property is an investment, total "interested party contributions" cannot exceed 2% of the purchase price. Your loan officer should have told you this upfront after receiving the contract.

From FNMA's perspective, since mortgages secured by investment properties are statistically more risky than those secured by a primary residence, the guidelines are set to ensure that the investor has more skin in the game. That's why the minimum down payment is higher, maximum IPC's are lower, and funds to close can not come from a gift.