Seller credits: how to ask for them and what they can pay for

What is a seller credit?

A seller credit is an amount the seller agrees to pay toward your costs at closing. It's written into your purchase contract and shows up on your closing paperwork as a credit from the seller.

The money never passes through your hands. At closing, it's applied directly to your costs, so you bring less cash to the table.

What can a seller credit pay for?

A seller credit can pay most of the costs of getting your loan and closing on the house. That includes lender and title fees, the appraisal, recording fees, and prepaid items like property taxes, homeowners insurance and the first month's interest.

It can also buy down your rate. You can use it to pay for discount points, which lower your rate for the whole loan, or a temporary buydown, which lowers your payment for the first year or two.

A seller credit can't pay your down payment, and it can't come back to you as cash. If the credit is bigger than your actual costs, the extra is usually lost, or the credit has to be reduced. That's why it's worth getting the amount right before you make your offer.

How much can a seller give you?

Every loan program limits how much a seller can contribute, usually as a percentage of the purchase price.

The limit depends on the loan type, and on a conventional loan it also depends on how much you put down: the more you put down, the more the seller can contribute. FHA and VA loans have their own limits. These limits can change, and lenders sometimes have their own, so check with your Mortgage Advisor before you write the offer.

Should you ask for a credit or a lower price?

If cash is tight, a credit usually helps more. A price cut lowers your loan amount, which trims your monthly payment by a small amount over the life of the loan. The same money as a credit covers costs you'd otherwise pay in cash right now.

A credit can also lower your payment more in the early years. Spent on a temporary buydown, it can cut your first-year payment by much more than a price cut of the same size would. Points vs a temporary buydown compares the two ways to spend it.

A lower price makes more sense if you have plenty of cash and plan to keep the loan a long time, or if the home may not appraise at the contract price.

How do you ask for a seller credit?

Your agent writes it into your offer, as a dollar amount or a percentage of the price. It's a normal request, especially when homes are sitting on the market or the house has been listed for a while.

You can also ask for one after the inspection. If the inspection turns up repairs, many sellers would rather give a credit than do the work themselves.

Before you make an offer, ask your Mortgage Advisor for an estimate of your closing costs and prepaid items. That tells you how big a credit you can actually use, so you don't ask for money you can't spend.

Can you raise the price to get a bigger credit?

Sometimes. A buyer may offer a little more than asking in exchange for a bigger credit, which works out the same for the seller. The catch is the appraisal. If the home appraises below the contract price, you'll need to make up the difference in cash or renegotiate, which defeats the purpose.

What about builder incentives?

New-home builders often offer credits toward closing costs or a rate buydown. Some only offer them if you use the lender they work with. That can be a good deal, but compare the full picture: the rate, the fees, and the payment, not just the size of the incentive.

Quick answers

Can a seller credit be used for the down payment?

No. A seller credit can pay closing costs, prepaid items, discount points or a temporary buydown, but not your down payment.

How much can a seller credit be?

It depends on the loan type, and on a conventional loan, on how much you put down. Ask your Mortgage Advisor for the limit on your loan before you write the offer.

What happens if the seller credit is more than my closing costs?

The extra usually can't be paid to you. The credit is reduced to match your actual costs, so ask for an amount you can use.

Is it better to ask for a seller credit or a lower price?

If you're short on cash, a credit usually helps more. A price cut lowers your payment a little for the life of the loan.