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What is a Seller Credit and How Can it Help?

January 15, 2025

A “seller credit” is when a home seller agrees to contribute a portion of your closing costs, essentially lowering the amount you need to pay out of pocket at closing. While it may depend on the type of loan and down payment amount, the maximum seller credit allowable typically ranges up to 3-6% of the purchase price. 

Loan Type Matters:

Different loan programs have different limits on seller credits. For example, FHA and USDA loans usually allow for up to 6% seller credit, while VA loans may allow up to 4%. 

Down Payment Impact for Seller Credit Limits on Conventional Loans:

With conventional loans, the maximum amount of seller credit allowed may be tied to the size of your down payment. Conventional loans typically allow a seller credit up to 3% of the purchase price if your down payment is less than 10%, increasing up to a seller credit of 6% for a down payment between 10% and 25%, and up to 9% seller credit allowed for a down payment over 25%.

Negotiation is Key:

When making an offer, work closely with your real estate agent to clearly state the amount of seller credit you are requesting to negotiate this with the seller. 

How to Use Seller Credits: 

  • Offsetting closing costs: The most common use is to directly apply the seller credit towards various closing costs like title insurance, appraisal fees, origination fees, and pre-paid property taxes. 
  • Buying down interest rate: In some cases, you can use the seller credit to buy down the interest rate on your loan, potentially lowering your monthly payments. 

Important Considerations:

  • Seller credits can be advantageous to the buyer but must be clearly negotiated with the seller and agreed to by the seller. 
  • Seller credits must be approved by the lender.
  • They cannot be used for the buyer’s down payment.
  • Overpricing the home to offset the seller credit may lead to appraisal issues.

Sources: Federal housing Administration (FHA), Dept of Veterans Affairs (VA), US Dept of Agriculture (USDA), Fannie Mae, Freddie Mac