Interested party contributions (IPCs) are costs that are normally the responsibility of the property purchaser that are paid directly or indirectly by someone else who has a financial interest in, or can influence the terms and the sale or transfer of, the subject property.
Interested parties to a transaction include, but are not limited to, the property seller, the builder/developer, the real estate agent or broker, or an affiliate who may benefit from the sale of the property and/or the sale of the property at the highest price possible. A lender or employer is not considered an interested party to a sales transaction unless it is the property seller or is affiliated with the property seller or another interested party to the transaction. (For Fannie Mae's purposes, an affiliation exists when there is direct common ownership or control by the lender over the interested party or vice versa, or when there is direct common ownership or control by a third party over both the lender and the interested party. A typical ongoing business relationship — for example, the relationship between a builder and a lender that serves as its financial institution — does not constitute an affiliation.)
IPCs are either financing concessions or sales concessions. Fannie Mae considers the following to be IPCs:
funds that are paid directly from the interested party to the borrower;
funds that flow from an interested party through a third-party organization, including nonprofit entities, to the borrower;
funds that flow to the transaction on the borrower’s behalf from an interested party, including a third-party organization or nonprofit agency; and
funds that are donated to a third party, which then provides the money to pay some or all of the closing costs for a specific transaction.
See B3-4.1-03, Types of Interested Party Contributions (IPCs), for more information.
Fannie Mae does not permit IPCs to be used to make the borrower’s down payment, meet financial reserve requirements, or meet minimum borrower contribution requirements.
The table below provides IPC limits for conventional mortgages.
IPCs that exceed these limits are considered sales concessions. The property’s sales price must be adjusted downward to reflect the amount of contribution that exceeds the maximum, and the maximum LTV/CLTV ratios must be recalculated using the reduced sales price or appraised value.
|Occupancy Type||LTV/CLTV Ratio||Maximum IPC|
|Principal residence or second home||Greater than 90%||3%1|
|75.01% – 90%||6%|
|75% or less||9%|
|Investment property||All CLTV ratios||2%|
The lender must ensure that all of the following requirements for an IPC are satisfied.
|✓||Lender Checklist for IPCs|
|Ensure that any and all IPCs have been identified and taken into consideration.|
|Provide the appraiser with all appropriate financing data and IPCs for the subject property granted by anyone associated with the transaction.|
|Ensure that the property value is adequately supported.|
|Ensure that the LTV and CLTV ratios, after any IPCs are taken into consideration, remain within Fannie Mae’s eligibility limits for the particular product.|
|Ensure that mortgage insurance coverage, if applicable, has been obtained, based on the LTV ratio after any IPC adjustments have been made.|
|Scrutinize all loan and sales contract documents, including but not limited to the sales contract, the loan estimate, the Uniform Residential Loan Application (Form 1003 or Form 1003(S)) (particularly Section VII, Details of Transaction), the appraisal report, and the settlement statement.|
|Ensure that all elements of the settlement statement were taken into consideration during the underwriting process.|
|Ensure that fees and expenses are consistent between all documents. Analyze any differences and review any discrepancies.|
Cash or Cash-like Incentives for all Transaction Types: The lender may provide the borrower with a cash or cash-like (e.g., a gift card) incentive that is not reflected on the settlement statement provided that
the amount of the incentive does not exceed $500, and
no repayment is required.
Because the lender is not typically a party to the sales transaction, these types of lender incentives are not considered IPCs and, as a result, are not included in the IPC limit calculation. Furthermore, these incentives are not considered cash out to the borrower and do not have to be included in the cash back to borrower at closing calculation.
Note: Documentation of compliance with this policy will not be required at the loan level. However, the lender must establish policies and/or procedures to ensure that the loans with these types of incentives that it delivers to Fannie Mae, whether or not the loans were originated by the lender, are in compliance with this policy.
Pay Down of Existing Mortgage Balance for Eligible Refinance Transactions: For DU Refi Plus and Refi Plus transactions, the lender may provide an incentive to the borrower in the form of a payment to pay off a portion of the mortgage loan being refinanced provided that
the amount of the incentive does not exceed $2,000,
no repayment is required, and
the payment is reflected on the settlement statement as a lender credit.
Because these are refinance transactions, the incentive is not considered an IPC and, as a result, is not included in the IPC limit calculation. Furthermore, this incentive is not considered cash out to the borrower and it does not have to be included in the cash back to borrower at closing calculation.
The table below provides references to the Announcements that have been issued that are related to this topic.
See B5-4-03, Loans Secured by HomePath Properties for an exception to this limit for principal residence transactions.