What closing costs can seller credits be used for?
Short Answer:
Any normal closing costs or buyer realtor commission.
Longer Answer:
When purchasing a home, closing costs can add up quickly, often becoming a significant financial burden for buyers. To alleviate some of this pressure, sellers may offer credits to cover certain closing costs. But what exactly can these seller credits be used for?
Here are the 11 closing costs a buyer may pay when buying a house that a seller credit could be used for:
1. Loan Origination Fees
Loan origination fees are charged by the lender for processing the loan application. These fees can be substantial, often ranging from 0.5% to 1% of the loan amount.
2. Discount Points
Discount points are prepaid interest that buyers can purchase to lower their mortgage interest rate. The amount of money needed to reduce an interest rate can change on a daily basis. Here is a video about discount points.
3. Appraisal Fees
An appraisal is required to determine the market value of the property. This fee is usually paid upfront and can range from $500 to $750 or more.
4. Title Insurance
Title insurance protects the buyer and lender from any legal issues that may arise with the property's title. This is a one-time fee paid at closing.
5. Inspection Fees
Home inspections are crucial for identifying any potential issues with the property. These inspections can cost several hundred dollars, depending on the size and location of the home. ts.
6. Recordation/Transfer Taxes
Depending upon the location you are purchasing, the state/county/city/town might charge a tax(es) for buying real estate. This tax is normally a percentage of the sales price and is paid at closing.
7. Attorney Fees/Settlement Free
In some states, an attorney is required to oversee the closing process. They charge a one-time fee at closing to handle the settlement of the mortgage.
8. Prepaid Interest
Prepaid interest is the interest that accrues on the mortgage from the closing date until the first payment is due.
9. Homeowner’s Insurance
Lenders typically require the first year of homeowner’s insurance to be paid at closing. In addition, the lender might ask for an additional three months to be placed into escrow. Here is a video that explains why.
10. Recording Fees
Recording fees are charged by the local government to officially record the change of ownership. These fees can vary but are often a few hundred dollars.
11. Buyer Agent Commission
In some instances, the seller might not offer compensation directly to a buyer's agent, but rather give buyers a flat credit towards closing costs. This credit could be used to pay for a buyer's agent commission.
Conclusion
Seller credits can be a valuable tool for reducing the financial burden of closing costs. Like most parts of the real estate contract, seller credits must be negotiated with the seller. These credits can be used for a wide range of expenses associated with purchasing a home. However, seller credits can only offset actual closing costs and can NOT be used towards a down payment.
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These blogs are for informational purposes only. Make sure you understand the features associated with the loan program you choose, and that it meets your unique financial needs. Subject to Debt-to-Income and Underwriting requirements. This is not a credit decision or a commitment to lend. Eligibility is subject to completion of an application and verification of home ownership, occupancy, title, income, employment, credit, home value, collateral, and underwriting requirements. Not all programs are available in all areas. Offers may vary and are subject to change at any time without notice. Should you have any questions about the information provided, please contact me.
