What is the definition of Interested Party Contribution?
Interested Party Contribution (IPC) refers to a payment by an Interested Party, or combination of parties, toward the Borrower's origination fees, other closing costs and discount points. Interested party contributions are costs that are normally the responsibility of the property purchaser that are paid directly or indirectly by someone else who has a financial interest in, or can influence the terms and the sale or transfer of, the subject property.
Who is considered an interested party?
The property seller; The builder/developer; The real estate agent or broker; An affiliate who may benefit from the sale of the property at a higher purchase price.
A lender or employer of the buyer is not considered an interested party to the transaction unless they are also acting as the property seller or another interested party.
What are the maximum interested party contributions limits?
IPCs that exceed these limits are considered sales concessions. The property’s sales price must be adjusted downward to reflect the amount of contribution that exceeds the maximum, and the maximum LTV/CLTV ratios must be recalculated using the reduced sales price or appraised value.
|Occupancy Type||LTV/CLTV Ratio||Maximum IPC|
|Principal residence or second home||Greater than 90%||3%|
|75.01% – 90%||6%|
|75% or less||9%|
All CLTV ratios
A $250,000 Purchase with a $150,000 Loan would be a Loan to Value Ratio (LTV) of 60%.
At 60% the maximum IPC would be 9% of the purchase price, $22,500, or the closing costs, whichever is less.
If the IPC, be it from seller or Realtor, were to be $25,000 the credit would exceed the IPC limits. As such, the excess $2,500 would be a sales concession. The purchase price would be considered as $247,500 ($250,000-$2,500) and the resulting LTV would be 60.61%. This change in LTV can affect loan terms in some cases, but shouldn’t cause you to buy mortgage insurance.
Post time: Jan-21-2022