Seller credits are essentially a way for the seller to help you with some of the closing costs or other expenses related to buying a home.
Imagine you’re buying a house, and during the inspection you see that the roof needs to be replaced in a year. You might use this as a way to ask the seller to cover the cost of the roof repair at closing, during your negotiations. It’s a win-win: you get some financial relief, and the seller gets to close.
Why would a seller offer credits?
Sellers offer seller credits for a few reasons, usually to make their property more appealing in a competitive “buyer’s market” or to close a deal faster. Here’s the scoop:
- Attracting buyers: If a home isn’t moving as quickly as the seller hoped, offering a credit can sweeten the deal (as opposed to just lowering the price of the home by the same amount). It makes the property more attractive, especially if buyers are concerned about high closing costs. For instance, if a house has been on the market for a while, a $5,000 credit might make it stand out in a crowded market.
- Negotiating leverage: Sometimes, a seller might use credits as a bargaining chip during negotiations. If the buyer is hesitant about moving due to an issue with the property or a competitive home for sale, a seller credit can be the extra nudge needed to seal the deal. It’s a way to meet halfway, especially if the buyer is already stretching their budget.
- Selling “as is”: If the property needs repairs and the seller doesn’t want to handle them before selling, they might offer credits to cover those costs instead. This way, the buyer can use the credit to fix issues like outdated appliances or minor repairs without the seller having to make those fixes upfront.
- Facilitating a quick sale: If the seller is in a hurry to sell—perhaps due to job relocation or financial reasons—offering credits can help speed up the process. It can help cover closing costs and make the sale go through more smoothly, especially if the buyer’s financial situation is tight.
Can I negotiate seller credits?
Totally, you can negotiate seller credits! Here’s how you can play it:
- Play the market: If it’s a buyer’s market with more homes than buyers, sellers might be more open to offering credits. For instance, if you’re eyeing a few properties and one seller is offering a $3,000 credit while others aren’t budging, use that to your advantage. Mention it in your negotiations to get a better deal.
- Show your strengths: If you’ve got your ducks in a row—good credit, pre approval letter, and a decent down payment—let the seller know. They’re more likely to throw in some credits if they see you as a serious buyer who’s ready to close.
- Be ready to compromise: If the seller is sticking to their price but you’re tight on cash, you might agree to a slightly higher purchase price in exchange for credits. For example, if you bump up your offer by $2,000, ask for $5,000 in credits to cover closing costs.
- Use inspection findings: Found some issues in the inspection? Use those to negotiate credits. For example, if the inspection reveals the roof is near the end of its life, ask for a credit to help cover the cost of a new one.
- Include it in your offer: When making an offer, include a request for seller credits. For instance, you might ask for a $5,000 credit to cover part of your closing costs. Be clear about why you’re asking for this and how it benefits both parties.
- Work with your agent: Your real estate agent can be a valuable ally in negotiating seller credits. They have experience with these negotiations and can advise you on how to make a strong case for credits based on current market conditions and the specifics of the property
Are seller credits common?
The frequency of seller credits has been on the decline, as housing supply has gone down in recent years, making the housing market more competitive and thus favorable for sellers in many markets. In 2023, only 20% of sellers offered incentives to lure buyers, a sharp drop from 46% back in the sluggish 2020 market (source: National Association of Realtors).
How do seller credits impact my mortgage?
Seller credits don’t directly affect your mortgage amount, but they can reduce the cash you need at closing. Just make sure the credit doesn’t push you over any loan limits.
Can seller credits be used for anything other than closing costs?
Mostly, seller credits are for closing costs, but sometimes you can use them for prepaids like property taxes or insurance. Check with your lender to see what’s allowed.
Are there limits to how much a seller can offer in credits?
Yep, there are limits. Lenders typically cap credits at a percentage of the home’s purchase price. For example, you might be limited to 3% of the price, so if you’re buying a $300,000 home, you’re looking at a max of $9,000 in credits.
How do seller credits affect the overall purchase price of the home?
Seller credits don’t change the home’s purchase price; they’re just a way to cover some of your costs. The purchase price stays the same, but you get a bit of a break on closing expenses.
Do seller credits need to be repaid or do they come off the top of the purchase price?
Seller credits don’t need to be repaid. They’re applied directly to your closing costs, so they just reduce the amount of cash you need at closing.
If you’re ready to start your journey to homeownership, get pre approved with Tomo Mortgage today.
