HUD HOC Reference Guide

The sales price of the property (or appraised value, if less) exclusive of any borrower-paid closing costs will be multiplied by the maximum loan-to-value percentages as shown HUD Handbook 4155.1, Section 2.A This determines the maximum mortgage amount provided the borrower makes their required cash down payment of at least 3.5%. Further, the calculated loan amount may not exceed the statutory loan amount limits.

The minimum down payment is based on the lesser of the appraised value or the sales price without considering closing costs. Should the sales price be higher than the appraised value, the borrower must also pay that amount that is beyond the 3.5% down payment.

Sellers or other third parties such as real estate agents, builders, developers, etc. or any combination of parties can contribute up to 6% of the property's sale price towards the buyer's actual allowable closing costs, UFMIP prepaid expenses, UFMIP discount points and other costs. Closing costs that are normally paid by the borrower would be considered contributions when paid by the seller or other associated party.

Please see: HUD Handbook: 4155.1 Page 2A & 2 B