Which percentage represents the maximum seller contribution if the LTV is less than 90% in general cases?

Which percentage represents the maximum seller contribution if the LTV is less than 90% in general cases?

• A. 3%
• B. 4%
• C. 6%
• D. 5%

Answer: (A)

In general mortgage lending practice, when the loan-to-value (LTV) ratio is less than 90%, the maximum seller contribution allowed is usually set at 3% of the sales price or appraised value, whichever is less. This limit is established to maintain proper underwriting standards and to ensure that the buyer has sufficient equity in the property while reducing potential risks associated with the use of seller concessions. Seller contributions are essential because they can help buyers cover closing costs or reduce the amount of cash needed to close on the home. However, these contributions can also inflate the property's sale price, which is why there is a cap on what sellers can contribute when the LTV is below 90%. By having a maximum limit, lenders can mitigate the risk of overvaluation and ensure that buyers are genuinely invested in their purchase.

In general mortgage lending practice, when the loan-to-value (LTV) ratio is less than 90%, the maximum seller contribution allowed is usually set at 3% of the sales price or appraised value, whichever is less. This limit is established to maintain proper underwriting standards and to ensure that the buyer has sufficient equity in the property while reducing potential risks associated with the use of seller concessions.

Seller contributions are essential because they can help buyers cover closing costs or reduce the amount of cash needed to close on the home. However, these contributions can also inflate the property's sale price, which is why there is a cap on what sellers can contribute when the LTV is below 90%. By having a maximum limit, lenders can mitigate the risk of overvaluation and ensure that buyers are genuinely invested in their purchase.