Written By: Leslie Petersen, Rules and Regulations Expert and Editor of www.MortgageCurrentcy.com.
Question: Have you ever heard of a FHA loan that would allow the seller to pay the interest portion of the payment for up to six months out of the seller contributions? ~ Vicki Williams, Montgomery, AL
Answer: Yes, this is an acceptable FHA practice! It’s just like the payment abatements that are no longer allowed by Fannie Mae and Freddie Mac, but it’s interest abatement, only.
FHA allows 6% to be paid by the seller, builder, real estate agent, or other third party for financing concessions, regardless of the LTV or loan amount. The allowance for interest payment abatements comes directly from HUD Handbook 4155.1 REV-5, 1-7, A., second paragraph:
It reads loud and clear to me, and I verified its acceptability on a recent phone call with one of the HUD Underwriters. Payment of mortgage interest on behalf of an FHA borrower is acceptable as long as:
