One of the biggest challenges for many homebuyers is coming up with the down payment. But did you know that you may be able to use seller credits to help cover this cost? In this article, we’ll explore what seller credits are, how they work, and what you need to know if you’re considering using them for your down payment.
What are Seller Credits?
Seller credits are a form of negotiation in which the seller agrees to provide a credit to the buyer at closing. This credit can be used to cover various costs associated with the home purchase, including the down payment. Seller credits are typically negotiated during the home purchase process and are included in the purchase agreement.
How Do They Work?
If the seller agrees to provide a credit, the amount will be written into the purchase agreement. The credit will be applied at closing and will be deducted from the amount that the buyer owes. For example, if the agreed-upon credit is $5,000 and the home purchase price is $250,000, the buyer would only need to bring $45,000 to the closing table instead of $50,000.
What You Need to Know
While seller credits can be a great way to cover some of the upfront costs of buying a home, there are some things you should be aware of before using them for your down payment. First, the amount of seller credits that you can receive may be limited by your lender. Typically, you cannot use seller credits to cover more than a certain percentage of your down payment.
Additionally, it’s important to note that using seller credits for your down payment can affect your overall loan-to-value (LTV) ratio. This ratio compares the amount of the loan to the value of the property. If you’re using seller credits to cover a significant portion of your down payment, your LTV ratio may be higher, which could affect your interest rate and loan terms.
Seller credits can be a useful tool for homebuyers who need help covering the upfront costs of buying a home, including the down payment. However, it’s important to understand the limitations and potential impact on your loan terms before using them. If you’re considering using seller credits, be sure to talk to your lender and real estate agent to fully understand how they can work for you.
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