Yesterday, we mentioned that closing cost credits can equal 6% (or even 9%) of the purchase price. Hence, for a $500,000 purchase, it is completely acceptable to have the seller credit $30,000 for closing costs, from a lender’s perspective.
Issues arise when closing cost credits exceed actual closing costs. This often happens when there are lender credits in conjunction with seller credits.
Closing cost credits can cover ALL recurring and non-recurring costs (including impounds and transfer taxes), as we mentioned.
The key is to get a valid estimate of all closing costs soon after going into contract and then tailoring the total credits to match the actual closing costs. If closing cost credits are too large, the purchase price and the credits need to be reduced by the same amount before loan documents are ordered.
If closing cost credits remain too large after loan documents are ordered, and credits exceed closing costs, the seller gets to keep the money. The credits get wasted.
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