Lenders,

This notice serves as a reminder that all lenders must ensure full compliance with Fannie Mae, Freddie Mac, FHA, VA, and USDA requirements regarding Interested Party Transactions (IPTs). IPTs refer to transactions where sellers, builders, real estate agents, or other parties with a financial interest in the sale provide contributions that may impact loan terms or borrower equity.

Key Compliance Requirements:

Fannie Mae & Freddie Mac IPT Requirements

• Limits on Contributions (Applies to Conventional Conforming Loans):
• ≤ 75% LTV: Up to 9% of the property value
• 76% - 90% LTV: Up to 6%
• > 90% LTV: Up to 3%
• Investment properties: Maximum 2%
• Allowed Uses: Closing costs, prepaid expenses, discount points.
• Prohibited Uses: Down payment assistance, borrower reserves, or undisclosed cash incentives.
• Full Disclosure Required: IPTs must be documented in the loan file.

FHA (Federal Housing Administration) IPT Requirements

• Maximum allowable seller contributions: Up to 6% of the sales price.
• Allowed for closing costs, prepaid expenses, and discount points.
• Prohibited Uses:
• Cannot be used for down payment or minimum borrower investment.
• No undisclosed cash incentives to borrowers.

VA (Veterans Affairs) IPT Requirements

• Seller contributions cannot exceed 4% of the reasonable value of the property.
• Can cover:
• VA funding fee
• Prepaid taxes & insurance
• Discount points
• Other closing costs
• Normal discount points and closing costs are not included in the 4% limit.

USDA (United States Department of Agriculture) IPT Requirements

• No set percentage cap, but contributions must be considered reasonable.
• Can be applied toward customary closing costs, prepaid items, and discount points.
• Cannot be used to cover the borrower’s required own funds investment or exceed actual closing costs.

Monitoring & Compliance

• All IPTs must be fully disclosed and documented to ensure regulatory compliance.
• Lenders must ensure that contributions do not inflate the property value or misrepresent borrower equity.
• Violations may result in loan ineligibility, repurchase demands, or enforcement actions.

If you have any questions, please contact Brian Hunt bhunt@ahfa.com.