If you have been thinking about selling your home, you may have heard of ‘closing cost credits’. What are they, and how do they apply to you? Perhaps you bought a house several years ago, or inherited a house from your parents. Maybe your parents or family members pitched in to help you purchase your first home. Regardless, you may be about to go through your first experience as a seller. Closing cost credits can be beneficial to your success as you put your first home on the market.
Closing cost credits, also known as seller concessions are exactly that! Essentially, the seller gives the buyer a credit to make up for any needed home repairs. The total closing costs normally determine the amount of the credit. However, they are always at the discretion of the seller (you). It is your decision if you want to offer this perk.
Often, the buyer may set in motion their desire for a closing cost credit, but the seller can also initiate the process. Seller concessions can be an incentive for someone who is on the fence about your property. They can also help make the house more appealing to potential buyers who are shopping the market. Closing costs can be expensive, so credits can be very beneficial for your buyer and also help you sell your house faster. For more information about closing costs in Wisconsin, click here.
When a closing cost credit total has been agreed (and the paperwork signed), the amount is typically taken from the final sale of the property. There are no upfront costs for the seller.
If your house is a bit of a fixer-upper or needs a lot of modern upgrades, a closing cost credit can be very beneficial in terms of making a sale. The credit can act as an incentive for a buyer who is having a home inspection. They will know that the property needs updating.
But why not just lower the price of the house? Selling a property for less won’t actually leave your buyer with cash left over to do any rehabbing. If the seller lowers the purchase price, the buyer will simply have a slightly smaller mortgage payment. They would have to find another way to pay for repairs. With a credit, the money that the buyer already put away for closing costs can immediately be used to do home upgrades like kitchens and bathrooms.
It is true that a closing cost credit can be very beneficial for a buyer who otherwise may not have been able to afford to buy your home. However, there are rules that apply to seller concessions that make it a benefit for you as well. Firstly, the credit cannot be applied to the down-payment of the house. Secondly, the credit is taken out of the cost of the closing fees so there is no worry that you will have to physically give the buyer your money. Thirdly, the buyer is required by their mortgage company to use the credit for home repairs or for other closing costs that may be incurred during the closing process. Therefore, there is no need to feel nervous that the buyer has suddenly walked away with extra cash.
It is worth noting that buyers with certain types of loans, such as FHA Financing or VA loans, are more likely to ask for a closing cost credit. These types of loans have seller concessions legally written into them. However, it is still up to you, the seller, as to whether or not you want to honour them.
If you are looking to sell your home, speak to a licensed real estate agent or a realtor. They can help you understand the benefits of how a closing cost credit can work for you.