3.2 Conventional Mortgage Underwriting & Interested Party Contribution (IPC) Caps

🎯 Key 2026 Real Estate Exam Takeaways

• Conventional loans enforce Interested Party Contribution (IPC) caps of 3%, 6%, or 9% depending on Loan-to-Value (LTV).
• Fannie Mae and Freddie Mac formally confirmed that customary seller-paid buyer broker fees are EXCLUDED from IPC calculations.
• Seller payments toward buyer agent fees do NOT exhaust the buyer's allowable financing concessions for rate buydowns or closing costs.

In conventional mortgage lending, Fannie Mae and Freddie Mac establish strict ceilings on Interested Party Contributions (IPCs)—funds provided by sellers, builders, or real estate agents to assist the borrower with financing costs. For principal residences, conventional IPC caps are 3% for LTVs over 90%, 6% for LTVs between 75.01% and 90%, and 9% for LTVs of 75% or lower.

Following the 2024 settlement, significant concern arose that if seller payments of buyer broker fees were classified as IPCs, financed buyers would have zero remaining concession room for loan origination points, appraisal fees, or title insurance. In response, Fannie Mae (Announcement SEL-2024-03) and Freddie Mac (Bulletin 2024-A) issued formal policy clarifications.

The government-sponsored enterprises (GSEs) confirmed that fees paid by a property seller to a buyer's real estate broker—in accordance with customary market practice and contract terms—are NOT considered IPCs. Consequently, seller-paid buyer broker fees do not count against the 3%, 6%, or 9% caps, preserving the buyer's full financing concession capacity.

⚠️ Common Licensing Exam Traps

• Do not assume that paying a 2.5% broker fee consumes 2.5% of a buyer's 3% IPC limit; Fannie/Freddie explicitly exclude broker fees from the IPC cap.
• Ensure that the purchase contract clearly delineates broker fee concessions from general closing cost concessions on the settlement statement.