A borrower is purchasing a home for $300,000 with an FHA loan in an area where the loan limit is $350,000. The seller agrees to pay 4% in closing costs. What is the maximum amount the seller can contribute?
Correct Answer
D) $18,000
FHA allows interested parties (including sellers) to contribute up to 6% of the sales price toward the borrower's closing costs, prepaid expenses, and discount points. With a $300,000 sales price, the maximum seller contribution is $18,000 (6% × $300,000), even though the seller only agreed to pay 4%.
Why This Is the Correct Answer
FHA allows interested parties (including sellers) to contribute up to 6% of the sales price toward the borrower's closing costs, prepaid expenses, and discount points. With a $300,000 sales price, the maximum seller contribution is $18,000 (6% × $300,000), even though the seller only agreed to pay 4%.
More Mortgage Knowledge Questions
A borrower is comparing two loan offers: Loan A has no points and 4.5% interest rate, Loan B has 2 points and 4.0% interest rate. The loan amount is $400,000. How much will the borrower pay upfront for the points on Loan B?
A lender charges a 1% origination fee on all loans. For a borrower obtaining a $250,000 mortgage, what is the maximum origination fee that can be charged without violating the points and fees test under the ATR/QM rule for a first-lien mortgage?
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A borrower is considering paying discount points to reduce their interest rate. Each point costs 1% of the loan amount and reduces the rate by 0.25%. On a $300,000 loan, how much would the borrower pay for 2 discount points?
A borrower asks about the difference between discount points and origination fees. What is the most accurate explanation?
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