How to get closing costs credit for an investment property?

[Edgar Rodriguez]

So I am buying my 2nd investment property. It is a sfh in Council Bluffs Iowa. I made and offer asking for 5% closing costs from seller. Well we are a week from closing now and my lender just told me that towards an investment property the seller can only give me 2%. I already made the deal, how would you handle this? Has anyone had this problem before?

[Guifre Mora]

Originally posted by @Edgar Rodriguez:

So I am buying my 2nd investment property. It is a sfh in Council Bluffs Iowa. I made and offer asking for 5% closing costs from seller. Well we are a week from closing now and my lender just told me that towards an investment property the seller can only give me 2%. I already made the deal, how would you handle this? Has anyone had this problem before?

Edgar, unfortunately, you may be out of luck on this one. You will have to pay out of pocket the difference. 

The restrictions on seller concessions vary by loan type. The lesser of the sale price or the appraised value usually dictates how much your seller can pay in concessions.

For example, say you offer $155,000 for a home. The home appraises for $150,000. If the seller concessions max out at 3%, the seller can contribute up to 3% of $150,000, or $4,500, to help with closing costs.

Here are the seller concession limits for some common loans.

Conventional Loans

The limit for conventional loans depends on how much you’re putting down:

• If your down payment is less than 10%, the seller can contribute up to 3%.
• If your down payment is between 10% and 25%, the seller can contribute up to 6%.
• If your down payment is more than 25%, the seller can contribute up to 9%.
• If you’re buying an investment property, the seller’s contribution is limited to 2%, no matter what your down payment is.

FHA Loans

For all FHA loans, the seller can contribute up to 6%.

USDA Loans

For USDA loans, the seller can contribute up to 6% of the buyer’s loan amount. This is the one loan type where the seller concessions are not based on the home price or appraised value.

VA Loans

VA loan rules dictate that the seller can contribute up to 4%. Seller concessions on VA loans may include payments toward a buyer's judgments and debts, as well as VA funding fees.

Summary

You have to make sure what you’re asking for is within the limits dictated by the type of loan you’re getting.