Who Counts as an Interested Party
An interested party is anyone who benefits from the property selling at the highest possible price or can influence the transaction terms. This definition captures more people than you might expect.
The seller is always an interested party, along with builders, developers, real estate agents, and their brokers. If your employer helps with your down payment and has any connection to the seller or agent, they become an interested party too. The same applies to nonprofit organizations or municipalities offering assistance programs.
Say you're buying a new construction home and the builder offers to pay $5,000 toward your closing costs. The builder is clearly an interested party. But if your company's relocation department also offers assistance and uses the same real estate agent the builder recommends, your employer might be considered affiliated with an interested party.
How Financing Concessions Work
Financing concessions are contributions from interested parties that can only pay specific expenses. You can use them for closing costs and up to 12 months of homeowners association dues. The funds for HOA dues must be collected at closing and paid directly to the association.
The limits depend on your loan-to-value ratio and property type. For primary residences and second homes, you can receive up to 3% of the home's value if your LTV is above 90%, up to 6% if your LTV is between 75% and 90%, and up to 9% if your LTV is 75% or below. Investment properties are capped at 2% regardless of LTV.
If you're buying a $400,000 primary residence with a 95% LTV loan, interested parties can contribute up to $12,000 in financing concessions. This money could cover your $8,000 in closing costs plus $4,000 for the first year of HOA dues.
When Contributions Become Sales Concessions
Any interested party contribution that exceeds the financing concession limits or doesn't meet the approved uses becomes a sales concession. This includes cash back to you, decorator allowances, furniture, gift cards, or anything that puts money in your pocket rather than paying legitimate transaction costs.
Sales concessions get subtracted from the purchase price when calculating your loan amount. If you're buying that same $400,000 house but the seller gives you $15,000 in contributions, the first $12,000 counts as financing concessions. The remaining $3,000 becomes a sales concession.
For manually underwritten loans, the lender subtracts the $3,000 from the $400,000 purchase price, creating an adjusted value of $397,000. Your loan amount gets calculated based on whichever is lower: this adjusted purchase price or the appraised value.
Required Documentation
Every interested party contribution must be documented in your loan file and clearly shown on the closing disclosure. The lender needs to identify the source, amount, and intended use of each contribution.
Your loan officer will require written documentation of any assistance offers before closing. This might include a letter from the seller agreeing to pay closing costs, documentation from your employer's relocation program, or agreements with nonprofit assistance programs.
The closing disclosure must show exactly how much each interested party contributed and what those funds paid for. If the builder paid $3,000 toward your closing costs and your employer contributed $2,000, both amounts and sources must appear separately on the form.
Why These Rules Exist
Fannie Mae created these restrictions to prevent artificial inflation of home prices and ensure loans reflect true market values. Without limits, sellers could inflate the purchase price and give buyers cash back, making the loan riskier than it appears.
The distinction between financing concessions and sales concessions protects both borrowers and investors. Financing concessions help with legitimate transaction costs without inflating the property value. Sales concessions that exceed limits or provide direct cash benefits suggest the true value might be lower than the stated purchase price.
Common Problems and Complications
The biggest trap is receiving contributions that aren't properly disclosed or documented. If any interested party pays money outside of closing that benefits you, the loan becomes ineligible for Fannie Mae purchase. This includes side agreements where the seller pays moving expenses or other costs after closing.
Another issue arises with affiliated parties. If your real estate agent refers you to a lender who offers credits, and that lender has any business relationship with the agent, those credits might be considered interested party contributions rather than standard lender credits.
Excessive HOA dues payments also create problems. If interested parties pay more than 12 months of HOA dues, the excess becomes an abatement that makes the loan ineligible. This rule catches buyers who don't realize the 12-month limit applies to the total from all interested parties combined.
Exceptions to Watch For
Some contributions don't count as interested party contributions at all. Lender credits from premium pricing are allowed even if the lender is affiliated with an interested party, as long as the credit comes from a higher interest rate.
Gift funds from family members who are also selling you the property can work if they're not builders or affiliated with other interested parties. The gift must meet all standard gift fund requirements in [[5501.4(a)]].
Real estate tax credits in areas where taxes are paid in arrears don't count as interested party contributions. Neither do costs associated with builder forward commitments, provided the builder obtained the rate commitment before contracting with you and not specifically for your transaction.
Impact on Your Loan Process
Understanding these rules helps you structure assistance properly from the start. If you know interested parties want to contribute more than the financing concession limits allow, plan for the sales concession treatment early in the process.
Work with your loan officer to calculate the maximum financing concessions based on your expected LTV ratio. If contributions exceed those limits, make sure everyone understands how the sales concessions will affect your loan amount calculation.
Remember that Loan Product Advisor automatically handles these calculations for automated underwriting, but manually underwritten loans require careful attention to the purchase price adjustments.
References
For the official guidelines, see 5501.6: Interested party contributions in the Fannie Mae Selling Guide.
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Original Freddie Mac Guideline Text
This section contains information related to:
Interested party contributions: definitions, requirements, exceptions and documentation
Financing concessions: definition, acceptable uses and maximum limits
Sales concessions: definition and impact on loan-to-value (LTV) calculation
(a)
Interested party contributions: definitions, requirements, exceptions and documentation
Freddie Mac will purchase Mortgages that include interested party contributions under the terms of the Purchase Documents and this section.
(i)
Interested party definition
An interested party is any person or entity that:
May benefit from the property selling at the highest possible price, and
Can influence the sales price or other terms of the real estate transaction
The following are
always
considered interested parties:
Real estate agent’s broker and agency
Any contributing party (e.g., Seller, originating lender, employer, municipality, nonprofit organization or Related Person) affiliated with any of the above individuals or entities.
For purposes of this section, an affiliation exists when the two parties are owned or controlled by a common third party or when one of the parties has ownership or control over the other.
(ii)
Interested party contributions requirements
Interested party contributions are any contributions that are made:
By an interested party, as defined above,
In connection with the Mortgage or the real estate transaction,
To or on behalf of the Borrower, and
Directly or indirectly through a third party, including a donation to a nonprofit entity
Freddie Mac will purchase Mortgages with interested party contributions that are:
Financing concessions meeting the requirements in
Section 5501.6(b)
below, or
Sales concessions meeting the requirements in
Section 5501.6(c)
below
(iii)
Exceptions to interested party contribution requirements
The following types of contributions are not subject to the interested party contributions requirements:
Lender credit:
A lender credit provided by an originating lender affiliated with an interested party to the transaction, provided the lender credit is derived from an increase in the interest rate (i.e., premium pricing)
Gifts from a Related Person:
Gift funds or gift of equity from a Related Person who is also the seller of the subject property, provided that:
The donor is not the builder or another interested party and has no affiliation with any other interested party to the transaction, and
All of the requirements for gift funds or gift of equity from a Related Person as stated in
Section 5501.4(a)
are met
Real estate tax credits:
Prorated real estate tax credits contributed by the property seller in areas where real estate taxes are paid in arrears
Builder forward commitment costs:
The costs associated with a forward commitment obtained by a builder from a lender in order to offer future buyers a specific Mortgage interest rate, provided the forward commitment was obtained prior to entering into a contract with the Borrower and it was not obtained specifically for the subject transaction.
Note: The Seller must deliver ULDD Data Point
Investor Feature Identifier
valid value “J70” for each Mortgage with rates provided based on builder forward commitments as required by
Section 6302.53
.
(iv)
Documentation of interested party contributions
The amount and the source of all interested party contributions must be documented in the Mortgage file and be clearly shown on the Settlement/Closing Disclosure Statement.
(b)
Financing concessions: definition, acceptable uses and maximum limits
(i)
Definition and acceptable uses of financing concessions
Financing concessions are interested party contributions that may
only
be used to pay:
The Borrower’s Closing Costs, and/or
Up to 12 months of homeowners association (HOA) dues, provided that the Settlement/Closing Disclosure Statement shows that:
The funds for the payment of the HOA dues were collected at closing, and
The funds were disbursed directly to the HOA
Contributions exceeding the amount of the Borrower’s actual Closing Costs and up to 12 months’ HOA dues (if applicable), as stated above, must meet the requirements for sales concessions in
Section 5501.6(c)
below, except that the payment of more than 12 months’ HOA dues is considered an abatement as described below in
5501.6(d)
.
(ii)
Maximum financing concessions limits
The maximum permitted financing concessions, calculated as a percentage of value as defined in
, are as follows:
3%
6%
9%
2%
2%
2%
Exceptions:
The maximum financing concession limits above do not apply to:
Financing concessions contributed by Freddie Mac as the property seller for Mortgages originated for the purchase of Freddie Mac REO properties
Borrower fees or costs customarily paid by the property seller according to local convention
The amount of any financing concessions exceeding the limits stated above must meet the requirements for sales concessions in
Section 5501.6(c)
below.
(c)
Sales concessions: definition and impact on LTV calculation
(i)
Sales concessions definition
Sales concessions are interested party contributions, that:
Exceed the maximum financing concessions percentage limitations in
Section 5501.6(b)(ii)
above, and/or
Do not meet the acceptable uses of financing concession in
5501.6(b)(i)
above, and include:
Cash or cash-like contributions (e.g., a gift card), decorator allowances, vacations, furniture, automobiles, securities or other giveaways
Rebates (e.g., rebates from real estate agents) that are not financing concessions
Reimbursement to the Borrower for payment of fees charged to process or negotiate a short sale (commonly referred to as short sale processing fees, short sale negotiation fees, buyer discount fees or short sale buyer fees)
(ii)
Impact of sales concessions on LTV calculation
®
Mortgages, Loan Product Advisor will determine the LTV ratio based on the purchase price or appraised value of the Mortgaged Premises and the dollar amount or value of sales concessions entered into Loan Product Advisor.
For Manually Underwritten Mortgages, when calculating the LTV ratio:
For purposes of determining the value of the Mortgaged Premises pursuant to
Section 4203.1(a)
, the dollar amount or value of any sales concessions must be deducted from the purchase price
Use the lower of the reduced purchase price (after the reduction for all sales concessions has been made) or the appraised value of the Mortgaged Premises
(d)
Ineligible Mortgages include:
Mortgages with interested party contributions paid outside of closing and not disclosed on the Settlement/Closing Disclosure Statement
Mortgages with abatements (that are funds provided to a lender or third party by an interested party to pay or reimburse in whole or in part a certain number of monthly payments of principal, interest, taxes, insurance and/or other assessments on the Borrower’s behalf in excess of Prepaid/Escrows associated with the Mortgage closing) including payment of more than 12 months of HOA dues.
