Seller credits can be useful when buyers are short of the cash required to make an offer to buy a home.
Seller credit can generally be utilized for closing costs or for any other items which are permitted by the lender and the local legal body to be placed on the loan's final settlement statement at closing.
Make sure that your Home contract states : Seller to contribute $XX,XXX to Buyer's Recurring and NonRecurring Closing Costs.
This will ensure that the money allowance is going toward all of your closing costs and just no a certain portion of your closing costs.
Many lenders will cap the amount you can be credited. However its often possible to get a huge amount of credit which will pay for all of your loan costs. Work that with a 100% financing loan product and you can buy a house for close to free.
In the present housing slump, builders and other sellers are much more likely to make concessions, and give a seller credit toward closing costs, than they were just a short time ago.
A seller credit is part of the sales contract. It should be negotiated by your real estate agent.
Another popular tool for sellers to assist buyers is a seller concession. With a seller concession, the seller will credit the buyer to help with the buyer's closing costs. A seller concession will only work if the appraised value is higher than the sales price.
Sellers are allowed to contribute up to 6% towards the buyer's closing costs.
How you and your real estate agent negotiate the seller credit may be determined by if you feel the house is under priced or over priced for the market. See the example below:
Under Priced: If the asking price is $100,000 and the property is worth more, then you would set up the seller credit at a higher amount than the asking price. Your bid would be $106,000 with a 6% or $6,000 seller credit
Over Priced: If the asking price is $100,000 and the property is worth that or possibly less, then you would set up the seller credit at the asking price. Your bid would then be $100,000 with the same 6% or $6,000 seller credit.
You could also go anywhere in the middle, for example a $103,000 bid with a $6000 credit. Your real estate agent will help you determine which route is the best for the specific property/market you are looking at.
A seller credit or seller concession is limited by some lenders to a maximum of only 3% of the sales price, depending on how much money you are putting down on the new home. Many times when the down payment being made on the home is between zero and five percent the maximum seller credit allowed is only 3%. There are also certain situation, usually when a large down payment is made, where you may qualify for a much higher maximum allowable seller credit than only 3 or 6 percent as well.