Seller Credits: When? How Much? Do They Slow Down Transactions?

Many buyers get credits for closing costs in lieu of credits for repairs, as most people know. If credits are for repairs, underwriters will require that they be completed prior to close which could cause delays. As such, it’s easiest on the lending side for the credit to be referenced on a simple RPA addendum stating that there is a seller credit for “X” amount to be applied towards closing costs.

Seller credits can be as much as 6% of the purchase price for owner-occupied properties (and even higher in some cases), and up to 2% of the purchase price for investment properties.

Seller credits can cover both recurring (interest, insurance & property taxes) and non-recurring (title, escrow, appraisal, etc.) closing costs. Credits cannot ever exceed actual closing costs, however, or they simply go unused.

Hence, buyers should always get an estimate of total closing costs before negotiating large credits.

The addition of closing cost credits does NOT require a new Closing Disclosure (CD), nor does it require a new three day waiting period.

If closing cost credits are increased or added, we want the info before we order loan documents b/c we have to run the updated info through our Automated Underwriting System (AUS) before documents are drawn. However, if we do not find out about a credit until after docs are drawn, or until after signing, we can still add it in—though we will need some extra time “prior to funding” for the file to go back to underwriting for the AUS to be re-run.

To prevent delays at funding and to ensure that the credit is not too high, we want to have all updated credits and related info at least a week prior to close.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 310167