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REALTORS: Looking to Buy? Use Your Commission to Cover Closing Costs

By W. Todd Galde

Real Estate Commissions for Down Payment or Credits?

Are you a Real Estate professional looking to buy a home?

Did You Know that for Conventional transactions, Real Estate Commissions may be used towards the down payment or closing costs?

Please read below for details on how each situation is treated.


Real Estate Commissions for Down Payment:

If the borrower is a real estate professional and is receiving commission income from the subject property transaction, the borrower may utilize the commission for any down payment and for any required funds to close. Note that commission funds cannot be used to meet any necessary reserve requirements.

If commission earnings from the borrower are used for down payment, the following items are mandatory:

  • The borrower must be a licensed real estate agent
  • The purchase contract must clearly show the borrower as the buyer’s agent
  • The borrower may not act as both the selling agent and the buying agent
  • The HUD-1 Settlement Statement must indicate a credit to the borrower as the agent
  • The amount of the credit may not exceed the commission stated on the purchase contract


Real Estate Commissions for Closing Costs:

When the commission is applied towards borrower closing costs the amount of the contribution would be subject to Interested Party Contribution (IPC) limitations as a percentage of the sales price, as follows:

  • If the purchase is Primary or Second Home and the loan-to-value is at or below 75% the max contribution is 9%.
  • If the purchase is Primary or Second Home and the loan-to-value is between 75% and 90% loan-to-value the max contribution is 6%.
  • If the purchase is Primary or Second Home and the loan-to-value is above 90% then the maximum contribution is 3%.
  • If the purchase is for an Investment property then the the maximum allowed is 2%.

Note: Any amount paid to the buyer in excess of the above percent or the actual closing costs and pre-paids will be considered a sales concession. The excess amount is considered a sales concession and will be deducted from the sale price and LTV/CLTV/HCLTV will be recalculated.

Advising. Smart. Financing.


Todd Galde