Total builder and lenders contribution on investment property

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  • Preston DeanBusiness Member
    Realtor · Fort Worth, TX · Member since 2021 · 779 posts · 368 votes
    1y

    Hi @Ramya Manchu

    Fannie Mae/Freddie Mac guidelines cap total interested-party contributions (IPCs) — like seller, builder, or lender incentives — at 2% of the purchase price for investment properties, regardless of down payment size. Anything above 2% must be reclassified as a sales concession, which reduces the appraised value used in loan calculation.

    Hope that helps!

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  • Nick BelskyBusiness Member
    Residential and Commercial Broker · Member since 2021 · 1k+ posts · 704 votes
    1y

    @Ramya Manchu

    What kind of financing program are you working with exactly? Different rules/guidelines for different programs. Lender contribution is usually a credit for taking a higher interest rate... A builder credit is treated more like a seller credit that has guideline limits... E.g. FHA has a seller credit of 6%, whereas Conventional is limited to 3-4%. Realtors can also contribute up to certain amounts, but these are called IPCs and treated differently from seller credits. If you are working with private money lenders, they can make whatever rules they want; some even have no limits at all.

    Cheers!

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  • Ramya Manchu
    OP
    Member since 2023 · 9 posts · 7 votes
    1y

    DSCR

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    • Nick BelskyBusiness Member
      Residential and Commercial Broker · Member since 2021 · 1k+ posts · 704 votes
      1y
      Quote from @Ramya Manchu:

      DSCR


      DSCR lenders will have their own set of rules that will change from lender to lender. If you are trying to get more credits out of the deal, try working with a broker who can help you maximize the credits you have so you can take advantage of them in the fullest. Many DSCR lenders have been dropping rates this week, a few are still lagging, but most are in the 6's and low 7's at 80LTV right now for the average file.

      Cheers!

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  • Simcha B Shedrowitzky
    Lender · Nationwide · Member since 2024 · 76 posts · 23 votes
    2mo

    @Ramya Manchu 

    Just to add to this—if you step outside of conventional guidelines and look at Non-QM loan programs (like DSCR or bank statement loans), the rules on Interested Party Contributions (IPCs) completely open up.

    Non-QM guidelines completely depend on the individual lender. 

    Many Non-QM portfolio lenders routinely allow seller/builder concessions up to 3%, 4%, or even 6% on an investment deal.

    If you have a builder or lender willing to give you more credits to offset your closing costs and title insurance, running it through a Non-QM program is usually the easiest way to keep from leaving that money on the table. 

    Definitely talk to a lender or broker who has deep access to various Non-QM matrices so they can match you with a lender that maximizes your credits.

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