Most lenders allow sellers to pay a buyer’s closing costs in the form of “credits.” These closing cost credits can cover both recurring and nonrecurring closing costs, and they can equal as much as 6% of the sales price.
Such credits are not, however, a “free lunch.” If someone buys a house for $400,000 and has the seller credit back 3% of the price ($12,000) for closing costs, the seller is really only netting $388,000. That buyer therefore could also pay $388,000 for the house with no seller credits, and the seller would still be equally satisfied.
The advantage of a closing cost credit is that it allows a buyer to keep more cash in his pocket. For example: if a cash-strapped FHA buyer is purchasing a $500,000 home, the closing costs will be in the $10,000 to $15,000 range. If the buyer does not have the extra cash to cover the closings costs, he can request a credit from the seller. Sometimes it is necessary to increase the offer price somewhat in order to ensure the seller is willing to extend the credit.
In competitive markets, sellers are often not willing to extend credits irrespective of price. In these situations, cash-strapped borrowers can also request lender-credits. Lenders, like JVM Lending, can also help cover closing costs, but such credits often result in slightly higher interest rates.