Contributions toward closing costs allow costs at closing and prepaid expenses to be paid by interested parties to the transaction. So, if you only have the down payment, or are looking to do a no down payment loan and do not have much cash, you can negotiate to have the closing costs paid for you.
Closing costs can be paid by the seller, real estate agent, or lender. There are limits on the amount a party can contribute depending on the type of loan and amount of down payment:
• If you are applying for a conforming loan for the purchase of a primary residence or second home, and the down payment is anywhere between zero down and 9.99%, you can receive a contribution up to 3% of the sales price. If you are putting down 10 – 24.99%, the percentage of allowable contribution increases to 6%. If you are putting 25% or more down, you can receive a contribution up to 9% of the sales price.
• If you are purchasing an investment property, the maximum contribution is 2% of the sales price.
• If you are applying for a FHA loan, you can get a 6% contribution. On a VA loan, the max contribution is 4%.
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