Closing Cost Credits – They’re Back!

While we’ve 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 offers over the listing price 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. They could also be to cover the actual closing costs. Although it may seem that the seller is footing the bill for the buyer’s closing fees, they might actually be 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 won’t walk away with cash in their pockets from a closing cost credit. Lenders require that the credit be used to pay closing costs, escrows or prepaid interest. Buyers can use the credits to lower their interest rate by buying points, prepaying private mortgage insurance, covering origination fees, paying 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 between 3-9% of the purchase price, FHA is up to 6%, VA ia is up to 4% and jumbo generally allows between 3-6%.

Your trusted Key Mortgage loan officer is well versed in these methods and is always willing to help strategize how to bring more deals together. Reach out to a LO today.