While we have spent quite some time in a seller’s market, rising interest rates and longer market times may open the door for sellers to creatively offer closing cost credits. These credits have all but disappeared with over-list price offers and multiple buyer situations, with the exception of occasional credits for inspection issues.
Closing cost credits are a way for the buyer to have more cash on hand for initial repairs and other necessities after buying by not having to bring as much to the closing table. It could also be for just that – the actual closing costs. Although it may seem that the seller is footing the bill for the buyer’s closing fees, what they actually may be doing is allowing the buyer to purchase the home in the first place. This is especially true if the house needs repairs or upgrades to make it desirable or to make the purchase more affordable.
Buyers will not walk with cash in their pockets from a closing cost credit. Mortgage companies require that the credit be used to pay closing costs. Buyers can use the credits to lower their interest rate by buying points, prepay private mortgage insurance, cover origination fees, pay their attorney fees, title fees, insurance and more.
For conforming loans, those that are destined for Fannie Mae and Freddie Mac, it is permissible to have seller credits up to 3% of the purchase price, FHA is up to 6% and VA is up to 4%; jumbo generally allows up to 3% of the purchase price. If you’re looking for a trusted loan officer that is well versed in these methods and is willing to help with strategies that can bring more deals together, I’ll connect you to a Key Mortgage loan officer.