If the loan-to-value (LTV) is 90% or greater, what is the maximum seller contribution percentage?

When the loan-to-value (LTV) ratio is 90% or greater, the maximum allowable seller contribution percentage is 3%. This rule is grounded in the guidelines established by various lending institutions and regulatory bodies to mitigate risk. A higher LTV indicates that the borrower is financing a larger portion of the home's value, which can imply higher risk for lenders.

To reduce this risk, limitations are placed on the amount sellers can contribute toward closing costs and other concessions. By restricting seller contributions to 3% in instances of high LTV ratios, lenders ensure that borrowers maintain a sufficient stake in the property and that the transaction remains financially viable without excessive reliance on seller assistance.

This 3% limit serves to balance the interests of both buyers and lenders, ensuring that buyers have enough equity in the property while still allowing them some assistance to cover closing costs. Understanding these dynamics is crucial for mortgage loan officers when structuring loans and advising clients effectively.