What Is a Seller Credit in Real Estate?

A seller credit is a financial concession a seller gives to a buyer at closing to help cover the buyer’s costs—such as closing costs, prepaid expenses, or repairs. Seller credits reduce the buyer’s cash required to close but do not lower the home’s price.

Seller Credit: Simple Definition

A seller credit is money the seller agrees to contribute toward the buyer’s closing costs or prepaid expenses. It appears as a credit on the Closing Disclosure and reduces the buyer’s out-of-pocket cash needed at settlement.

Seller credits are also called seller contributions and are one type of seller concession.

How Seller Credits Work

Seller credits are negotiated in the purchase agreement. Instead of completing repairs or lowering the price, the seller offers a credit the buyer can apply toward specific closing costs.

  • The credit appears as a line item on the buyer’s Closing Disclosure.
  • Lenders limit the amount of seller credits based on loan type.
  • Credits cannot exceed actual allowable costs—excess credit cannot be cashed out.
  • Credits must be formally documented in a purchase addendum.

Credits are commonly used during the inspection contingency when buyers request compensation for repairs.

Why Seller Credits Matter

Seller credits are important because they:

  • Help buyers cover closing costs and reduce upfront cash needs
  • Allow sellers to attract more buyers without lowering the purchase price
  • Simplify negotiations when repairs are disputed
  • Keep transactions alive when buyers are short on cash to close

For FSBO sellers, credits often resolve repair issues more efficiently than performing the repairs themselves.

Loan Limits on Seller Credits

Lenders cap the maximum allowable seller credit based on loan program:

  • FHA loans: up to 6% of the purchase price
  • VA loans: generally up to 4%
  • Conventional loans: typically 3%–9% depending on down payment

Buyers and sellers should confirm credit limits early to avoid last-minute contract changes.

Examples of Seller Credits

  • Closing cost credit: Seller pays $5,000 toward buyer closing costs.
  • Repair credit: Instead of fixing a roof issue, the seller offers a $3,000 credit.
  • Rate-buydown credit: Seller pays points to reduce the buyer’s interest rate.
  • Prepaid items credit: Seller covers taxes or insurance advances.

Credits must be approved by the lender and supported by actual allowable costs.

Risks and Limitations

  • Lender caps may prevent full credit amounts.
  • Credits cannot exceed actual closing costs or prepaids.
  • Credits do not address issues affecting loan approval (e.g., safety or structural repairs).
  • Buyers with very low closing costs may not be able to use the entire credit.

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