Definition
Some sellers provide credits at closing to help reduce your cash requirement—to cover closing costs, repair allowances, or other expenses. These reduce what you owe at closing.
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Seller credits are negotiated during the purchase agreement and allow buyers to reduce their cash requirement. Common scenarios include the seller providing credits toward the buyer's closing costs, agreeing to pay for certain repairs instead of allowing the buyer to deduct from purchase price, or covering specific expenses. Seller credits appear on the settlement statement and reduce the final cash amount the buyer must bring to closing. Some lenders limit the amount of seller credits allowed.
Pro Tip
Negotiate seller credits early in the purchase agreement. Some lenders limit credits to 3-6% of purchase price.
Example
The purchase agreement included a seller credit of $8,000 toward the buyer's closing costs. The buyer's settlement statement showed: cash needed $105,000, seller credit -$8,000, resulting in final cash due of $97,000.