Ask The Experts: Question of the Week
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Title
Question:
In our state, taxes are paid in arrears, so the buyer has a sizable tax credit. Can we use that for their MRI [Minimum Required Investment/Down Payment]?
Answer:
According to conventional agency guidelines, a legitimate pro-rated real estate tax credit in places where real estate taxes are paid in arrears is not considered a financing concession and is not subject to Fannie Mae’s Interested Party Contribution (IPC) limits.
However, it cannot be considered when determining if the borrower has sufficient assets for the transaction.
In summary, while a seller tax credit can be part of the transaction, it cannot be used to meet the minimum borrower contribution requirements. The borrower must still meet the minimum contribution from their own funds or other eligible sources as specified in the guidelines.
Resources:
Subscribers have access to two All Agency Comparison Charts addressing this topic. Both can be found under “Charts & Checklists” in the category of All Agency. Or do a quick search in our library for “Pro-Rated Real Estate Tax Credits” or “Assets – Acceptable Sources of Funds for Reserves and Down Payment.”