Interested Party Contribution (IPC) Limits: Conventional, FHA, VA, USDA
IPCs can substantially lower your out-of-pocket expenses at the closing table, but each loan program sets its own limits on how much sellers can contribute and what the funds can cover.
Finding ways to reduce your upfront costs when buying a home can sometimes mean the difference between closing the deal and walking away without the home of your dreams. Interested Party Contributions (IPCs) are a powerful tool to help lighten the burden and make homeownership more affordable.
However, rules for IPCs, or seller concessions, vary by loan type and you might face restrictions on how much wiggle room there is to get a seller to pay for certain closing costs.
What Are Interested Party Contributions?
Interested Party Contributions, or IPCs, are financial concessions provided by someone with a stake in a real estate transaction. “Interested parties” typically include:
The seller
The builder or developer
The real estate agent or broker
These contributions can help buyers cover closing costs and other home-buying expenses. Mortgage programs set IPC limits to prevent inadvertently inflating home prices and to ensure buyers have enough personal investment in the deal.
According to Fannie Mae, IPCs can generally be used for closing fees such as:
Loan origination fees
Discount points (to buy down interest rates)
Appraisal fees
Title insurance
Recording fees
Prepaid taxes and homeowners insurance
Homeowners association (HOA) transfer fees
In most cases, IPCs cannot go toward:
Down payment (in most cases)
Paying off buyer’s debts (except for VA loans)
Cash back to the buyer
The maximum allowable IPC depends on your loan-to-value (LTV) ratio or the down payment amount. Typically, the higher your down payment, the more seller concessions you might receive.
Quick Table: All IPC Limits
| Loan Attributes | IPC Max, Based on Purchase Price |
|---|---|
| Conventional, <10% Down | 3% |
| Conventional, 10-24.99% Down | 6% |
| Conventional, >25% Down | 9% |
| Conventional, Investment Property | 2% |
| FHA | 6% |
| VA | All standard closing costs plus an additional 4% |
| USDA | 6% |
| Jumbo | Varies by lender |
Conventional Loan IPC Limits
Conventional loans, or those not backed by the federal government, follow borrowing guidelines set by Fannie Mae and Freddie Mac. Conventional IPC limits are based on the property type and down payment amount.
For primary residences and second homes, IPCs are capped at:
3% of the purchase price with less than 10% down
6% with 10-25% down
9% with more than 25% down
For investment properties that you rent out, IPC limits are 2% regardless of the down payment amount, according to Fannie Mae. These tiered limits ensure that buyers have more skin in the game, making them less risky borrowers. The more you put down, the more money sellers can offer in concessions.
FHA Loan IPC Limits
Loans insured by the Federal Housing Administration (FHA) have simpler IPC limits. FHA loan IPC limits are capped at 6% of the home’s purchase price or appraised value (whichever is less), according to HUD.
If seller concessions exceed 6%, the excess amount is considered a pride reduction rather than going toward closing costs. FHA loans offer more borrowing flexibility than conventional loans for borrowers with lower down payments since they allow up to 6% in IPCs no matter the down payment size.
USDA Loan IPC Limits
Homes in eligible rural areas can qualify for financing guaranteed by the U.S. Department of Agriculture (USDA) with zero down. USDA loans have an IPC cap of 6% of the purchase price.
Because USDA loans don’t require any money down, the 6% IPC can potentially cover all closing costs for qualified buyers, making USDA one of the most affordable loan options for homes in eligible rural areas.
VA Loan IPC Limits
Loans backed by the Department of Veterans Affairs (VA) are reserved for active-duty military servicemembers, veterans and certain eligible spouses. VA loans have unique IPC rules that make the mortgages an attractive option for military borrowers.
The VA sets a 4% maximum IPC limit for certain home-buying costs, including:
Paying off the buyer’s debts from their credit report
VA funding fee
Prepaid closing costs
Discount points
What makes VA loans special is that many standard closing costs don’t count toward this 4% limit. These include title insurance, recording fees, loan origination fees, appraisal fees, credit reports, attorney fees, surveys, and homeowners association (HOA) transfer fees.
In a nutshell, this means sellers can offer more than 4% of the purchase price when including these standard closing costs, making VA loans with their zero-down requirement even more cost-effective for military borrowers.
IPCs help make the home purchase process for the veteran easier and more accommodating by reducing the amount of money they need to bring to the closing table out of pocket
“IPCs help make the home purchase process for the veteran easier and more accommodating by reducing the amount of money they need to bring to the closing table out of pocket,” says Jon Wolverton, SVP of Lending with Armed Forces Bank. “By using the IPCs to minimize these out-of-pocket costs, a veteran can save these funds for saving, moving expenses, updates, repairs, and upgrades to the home after they close.”
Jumbo Loan IPC Limits
Jumbo loans fall outside of conventional loan limits. Lenders that offer jumbo loans set their own rules for IPCs. Some may not allow IPCs at all while some may allow percentages that align with Fannie Mae rules. If you're looking at a loan amount in jumbo territory, ask your lender upfront whether you can receive IPCs.
How To Use IPCs as a Buyer
If you’re buying a home, you can maximize IPCs to your advantage. Here’s how:
Cover closing costs: The most common use of IPCs is to cover closing costs, which range from about 2% to 5% of the loan amount. These costs include title and escrow services, loan origination fees, prepaid property taxes and insurance, and more. Having the sellers pay these costs can free up your savings for moving expenses and setting up your new home.
Buy down your mortgage rate: If you’ve negotiated enough IPCs to cover closing costs, you could use additional funds to buy down your interest rate, helping you save on interest payments over the life of your mortgage.
Negotiate home inspection repairs: IPCs can be a strategic tool for buyers to use when renegotiating with the seller after the home inspection has been completed, says Wolverton.
“If the repairs discovered do not violate local codes for health and safety issues, the buyer can renegotiate the cost of the repairs to be applied as an IPC in the transaction,” Wolverton points out.
How To Use IPCs as a Seller
For sellers, IPCs can be a strategic marketing tool, especially in a slower market where buyers have plenty of options. Here’s how:
Attract more buyers: Offering to pay some or all of the closing costs might widen your pool of potential buyers, especially in slower markets where buyers have the upper hand. Ultimately, money talks.
Maintain your asking price: Rather than lowering your home’s asking price, sweetening the deal with IPCs allows you to hold firm on your price while still giving buyers a financial incentive to look twice at your listing.
Avoid making costly repairs: When buyers get a home inspection report with several findings, they might ask for repairs that will add up. But with IPCs on the table, you can avoid the inconvenience and expense of repairs and close the deal more quickly.
Stand out in a crowded market: When more homes sit on the market longer, buyers tend to get the upper hand. Offering IPCs can help you stand out in the sea of sameness among other listings. This might also help you close faster, especially if you’re buying another home and have a tight timeline to work with.
The Bottom Line
IPCs can be a savvy, strategic way to negotiate a home purchase with fewer bumps in the road. Both buyers and sellers stand to benefit from IPCs, creating win-win scenarios, depending on each party’s goals.
For buyers, IPCs can help reduce upfront costs so you have more cash for other goals. And sellers can get a leg up on the competition and potentially close faster and with less hassle.
Understanding IPC limits for each of the main loan types — conventional, FHA, USDA and VA — will help you more deftly navigate at the negotiating table. Work closely with your loan officer and real estate agent on a strategy that considers IPC rules that apply to your specific loan program and homeownership goals.
