Selling Guide

Published December 16, 2020

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Are lender contributions to fund closing costs and prepaid fees permitted?

Lender Contributions

The lender may provide the borrower with a contribution to fund borrower-paid closing costs and prepaid fees in the following cases: 

  • The lender credit is sourced directly from lender funds with no expectation for repayment or financial obligation apart from the subject mortgage. Funds passed to the lender from a third party, for the purpose of providing a lender credit, are not eligible as a lender contribution.
  • The lender credit is derived from the borrower selecting a higher interest rate in exchange for a lender credit, as described in Premium Pricing, B2-1.5-02, Loan Eligibility

The amount of the lender contribution should not exceed the amount of borrower-paid closing costs and prepaid fees and may not be used to fund any portion of the down payment or financial reserve requirements. Lender contributions are not considered grants.

When the lender is an interested party to a purchase transaction, any amount of a lender contribution not derived from premium pricing, must be considered as an IPC when calculating the maximum IPC limit for eligibility purposes. 

Any excess lender credit required to be returned to the borrower in accordance with applicable regulatory requirements is considered an overpayment of fees and charges and may be applied as a principal curtailment or returned in cash to the borrower. See B2-1.3-01, Purchase Transactions and B2-1.3-02, Limited Cash-Out Refinance Transactions for treatment of the overpayment of fees and charges.

Lenders may also provide borrowers with cash or cash-like incentives that do not need to be reflected on the settlement statement. See B3-4.1-02, Interested Party Contributions (IPCs) for additional information. 

For additional information, see B3-4.3-06, Grants and Lender Contributions 

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