Maximizing Your Home Buying Power with Seller Credits

When purchasing a home, every dollar counts. Whether you’re putting down 3.5% with an FHA loan or opting for a conventional route with 10% or 20% down, understanding how seller credits work can be a game-changer. These credits can significantly reduce your out-of-pocket expenses, lower your monthly payments, and provide long-term financial savings.

What Are Seller Credits?

Seller credits—sometimes referred to as seller concessions—are funds the seller agrees to pay toward your closing costs or other purchase-related expenses. These credits are typically negotiated as part of the purchase agreement and can dramatically improve your financial situation at closing.

Here’s why they matter: seller credits don’t reduce your loan amount, but they do reduce the cash you need at closing. Even better, they can be used to buy down your interest rate, unlocking substantial long-term savings.

FHA Loans: Leverage Up to 6% in Seller Credits

One of the biggest advantages of FHA loans is the generous seller credit limit. With an FHA loan, you can receive up to 6% of the purchase price in seller credits.

Example:

For a $600,000 home:

• Down Payment (3.5%): $21,000

• Maximum Seller Credit (6%): $36,000

This $36,000 can be used to:

• Cover closing costs

• Buy down your interest rate

• Or a combination of both

The Savings Impact:
Let’s say you use 3% of this credit for closing costs and the remaining 3% to buy down your interest rate. If that $18,000 buys you a full percentage point reduction on a $600,000 loan, you could lower your monthly payment by as much as $400. Over just five years, that’s a potential $24,000 in monthly savings.

Tax Advantage:
Additionally, any portion of the seller credit used to pay discount points is typically tax deductible in the year you purchase the home, providing another layer of financial benefit.

Conventional Loans: Understand the Limits

Conventional loans also allow seller credits, but the allowable amounts depend on your down payment:

• Less than 10% down: 3% maximum

• 10% to less than 25% down: 3% maximum

• 25% or more down: 6% maximum

• Second home: 3% maximum

• Investment property: 2% maximum

For example, if you’re putting 10% down on a $600,000 home, your seller credit cap is 3%, or $18,000. This can still cover a significant portion of your closing costs or help buy down your interest rate.

The Bottom Line: Why Seller Credits Matter

Understanding seller credits can make a meaningful difference in your home-buying experience:

• Reduce Out-of-Pocket Costs: Lower the amount you need to bring to closing

• Lower Monthly Payments: Use credits to buy down your interest rate

• Increase Buying Power: Stretch your budget without stretching your finances

Ready to Explore Your Options?

If you’re ready to take the next step, or just want to understand how to maximize your purchasing power, we’re here to help. Whether it’s an FHA or conventional loan, reach out today for a personalized rate quote and financing strategy.