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Buying a home in today’s market comes with challenges: high interest rates, strict lending guidelines, and steep monthly payments. But there’s a strategy many buyers overlook that could save them thousands over time: seller credits.
What Are Seller Credits?
Seller credits, also known as seller concessions, are funds a home seller agrees to contribute toward the buyer’s closing costs. This means instead of negotiating a price reduction, buyers can ask sellers to cover some of their upfront expenses. These credits do not lower the purchase price, but they reduce the cash buyers need to bring to the table or can help lower their interest rate.
How Seller Credits Work
Seller credits can be used to cover:
- Loan origination and lender fees
- Discount points to buy down the interest rate
- Appraisal fees
- Title and escrow fees
- Prepaid property taxes and insurance
They cannot be applied toward the buyer’s down payment or reserves.
Understanding the Dollar-to-Points Formula
A common use of seller credits is to buy down the buyer’s mortgage interest rate. Here’s how it works:
- 1 discount point = 1% of the loan amount
- Each point generally reduces the interest rate by 0.25% (varies by lender and market)
Example:
- Purchase Price: $800,000
- Down Payment: 10% ($80,000)
- Loan Amount: $720,000
- 1 point = $7,200
- Using 2 points ($14,400) might reduce the interest rate from 7.25% to 6.75%
Cap Limits on Seller Credits
There are limits to how much credit a seller can give. These are based on loan type and down payment amount:
- Conventional Loans
- <10% down: 3% max seller credit
- 10–25% down: 6% max
- 25% down: 9% max
- FHA Loans: 6%
- VA Loans: 4%
Example: On a $800,000 home with a 10% down payment, a buyer could receive up to 6% of the purchase price in seller credits:
- 6% of $800,000 = $48,000 maximum allowable seller credit
Real-World Scenario
Let’s say a buyer is purchasing an $800,000 home with 10% down:
- Loan: $720,000
- Seller offers $20,000 in credits
- Buyer uses $14,400 to buy down interest rate from 7.25% to 6.75%
- Monthly mortgage drops by approx. $400/month
- Over 5 years: $400 x 60 months = $24,000 in savings
- Remaining $5,600 covers lender fees and prepaid items
The Bottom Line for Buyers
Using seller credits effectively means you can:
- Lower your monthly mortgage payment
- Reduce your long-term interest expense
- Free up cash for repairs, furniture, or reserves
- Compete in today’s market without compromising on price
When used strategically, seller credits turn a tough rate environment into a smart buying opportunity. 
