Getting A Seller Credit In Lieu Of Repairs

March 2nd, 2020

how to get a seller credit

It is very common for a buyer and seller to negotiate a seller credit in lieu of repairs after a buyer does a home inspection. Most sellers do not want to bother with doing a small amount of repairs, and some may not have the money until after they go to settlement, so they negotiate a credit and offer to pay some money at settlement for these repairs. The problem comes when the Realtors word this incorrectly in the contract and end up causing last minute problems.

Seller Credit for Repairs

The people that write the rules for mortgage loans, Fannie Mae, Freddie Mac, FHA, and VA, all say that any seller credits can only be credited against closing costs. Period, there is no alternative, there is no wiggle room, no lender from one to the next will have a variance on this. You cannot have a seller credit for:

-carpet allowance
-repairs
-new fence
-furniture allowance
-landscaping
-etc.

The rule makers expect a house to be 100% complete at the time of closing. If there are repairs to be made, they would need to be made prior to settlement. Luckily for homebuyers and Realtors, the rule makers do not require a copy of the home inspection! So how do you get the seller to pay for repairs that you negotiate to be compensated for? You write an addendum that says, “The buyer and seller agree the seller will pay $_____ towards the buyer’s closing costs.” That is it.

Writing Addendums for Seller Credits

An addendum for seller credits cannot mention home inspection, remedy for home inspection, repairs, carpet allowance, etc. ONLY CLOSING COSTS can be paid for by seller credits, but I find many Realtors do not know this, or forget this, and they write into the contract or an addendum that, “the seller agrees to pay $_____ to compensate the buyers for termite damage.” Loan denied, or at least put on hold, until the leaky roof is fixed.

The same logic applies to furniture or items that a buyer and seller negotiate and agree to have the seller leave behind, like a chandelier, pool table, or patio furniture. No consideration can be given in the sales contract for items like this. An underwriter would ask, if they saw language like this, for an addendum agreeing that the items that are conveying are assumed to have no value, and are not part of the sales price. Rather than have this even be an issue, it is probably better to write this into a separate addendum that no one else ever sees except for the buyer and seller.

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Schedule a call with me if you’ve got questions about negotiations or a specific situation to discuss.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.​

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57 Responses to “Getting A Seller Credit In Lieu Of Repairs”

  1. Jaime says:

    We currently have a contract on our home, the buyers are VA and we have agreed to 3.5% in closing help. They recently submitted a list of requested repairs based off of the home inspection. We are not in the position to nor do we want to worry about making any of these repairs so we would like to offer the money to the buyers in seller concessions. We would like to offer them 5,000 which is under the 4% cap. Is there a way to make this happen? The closing cost assistance we have already agreed to is totally separate from any seller consessions, correct?

  2. brianm says:

    There is no limit to how much a veteran can receive in concessions towards what is considered customary; however, there is a 4% of the sales price limit on things that are considered outside of what is customary. These would be things like Home Depot gift cards, discount points the on VA Funding Fee, and the payoff of debt, collections, and judgments to help the veteran qualify.

    So to reiterate, the seller may pay all reasonable and customary closing costs and discount points without limit, but the things that are considered non-customary have a 4% limit. The reality is that it’s hard to approach either of these limits anyway. I would talk to the lender, but if you’ve already met the limit of what the seller can pay towards the buyers closing cost the only other solution would be to actually make the repairs prior to closing.

  3. Mary says:

    I have a home in contract that the sellers agreed to do the section 1 termite work on the buyers request for repairs. Because of extenuating circumstances, the sellers don’t have enough time to get it done in time for closing.
    Instead of asking for an extension to close, Can we do an addendum to credit the buyers with the cost at closing?
    Note: this is a 20% down conventional loan and the loan docs and escrow package are already complete.

  4. brianm says:

    If you have not maxed out seller credits already, and as long as you don’t mention the new seller credit is in lieu of termite work, yes, you should be able to do this and close sooner.

  5. Patricia Dragish says:

    I am a buyer in this situation right now. There is an addendum presented to me that will allow me to select the contractors after settlement and the settlement agent will hold funds for dispersement when work is completed. My agent insist that I have contractors give estimates before closing. I do not understand the reason for this, since an amount has been established and agreed upon by Seller and myself. Any information will help me.

  6. brianm says:

    Hello Patricia. I think what they’re setting up for you is an escrow for repairs, not a seller credit. It sounds like they are going to put some money into an escrow account that the title company will hold until the repairs are satisfactorily completed. And then you get to pick contractors and have the work done, and if the work is not done to your satisfaction some/all of the escrow funds would be released to you. This is completely different then a seller credit. You just to be very careful and be confident in your selection of the contractors. Good luck.

  7. Paul says:

    Great article Brian.
    Is a reduction in price of the home in lieu of repairs similar to what you are explaining in your article (i.e. a seller’s credit)?
    Thanks!

  8. brianm says:

    Thanks Paul! Dropping the purchase price is fine, and even a seller credit is fine; you simply have to make sure that you word the addendum such that you’re not mentioning that either the price drop or the seller credit are in lieu of the repairs. You would want to do a simple one sentence addendum such as the below:

    “Seller and buyer agree that a price drop to $___ price has been agreed on, this supersedes any previous agreements.”

    Or, perhaps:

    “Seller and buyer agree that the seller will pay $___ towards the buyers closing costs, this supersedes any previous agreements.”

    You just want to make sure there is never any mention of repairs.

  9. Paul says:

    Brian,
    Thanks for the fast response!

  10. Hannah says:

    I am a first time home buyer. After the inspection, there is a $10,000 repair needed. We signed a mutual acceptance form stating the seller would give “$10,000 credit in lieu of roof repairs.” Our agent told us this is great and that we would have the money to do the repairs ourselves. Well, now we are being told that the money can only go towards our $5,000 in closing cost and we miss out of the other $5,000. We are very upset with this news. Is there something that can be done at this point? Halfway through the closing process. We can’t afford to pay for this roof ourselves at this point. Thank you

  11. brianm says:

    I’m afraid that is correct, and that any seller credit can only go towards closing costs, not repairs. Your realtor really should have known that. What you can do is reduce the seller credit to $5,000, and reduce the purchase price by $5,000. At least that way you would not be leaving $5,000 on the table of a $10,000 seller credit where half of it was not usable. But I know that would put money in your pocket to do the repairs. Or, you can see if the sellers would do the repairs now, and they could pay for them prior to close, or at close, out of the proceeds of the sale? They’d still kick in $10,000 but half of it would be in the form of a $5,000 seller credit, and the other half would be in the form of $5,000 of repairs. I hope that helps. Good luck working it out.

  12. NATHAN DOTY says:

    I still see this come up, there are still agents that say it’s ok. I had one bring it up yesterday, had to tell her no.

  13. JohnB says:

    Great article. Right now I have a deal where seller agreed to give 12k towards closing costs and new HVAC system. It is a 3% max on srllers assist for closing costs. Can I attach a addendum between the HVAC company and seller only, for the remaining 4800 to be pd after closing? Ty

  14. brianm says:

    Hello John. Thank you for the inquiry. I would check with the lender on this, but I think if you could have the seller pay the HVAC company directly at settlement, and then the remainder could go to the buyer as a seller credit, then you should come in well under the 3% Seller closing cost limit. Post back here again with any questions. Good luck.

  15. Cynthia Navarro says:

    We olaced a contract for a mobile home in a permanent foundation. FHA loan. Purchase price total at 170k with 5k seller credit for closing costs. My agent just sent me a multiple counter offer “bring highest and best” and attached the recent pest inspection from the seller needing 10k of work. “Seller prefer not to do any repairs” Now, 170k is my absolute max, max,max, and a seller credit is already included for closing.. Any strategy toward making our offer better and dealing with the pest work. I have listed a 22 day close and short contingencies. What is the max FHA seller credit?

  16. brianm says:

    We don’t do mobile home lending, so I am not sure the same rules apply…but FHA requires a clear termite inspection prior to closing. If there is 10k of needed termite work, I don’t believe you can even get an FHA loan approved in this situation. I’d ask your current lender for clarification. Good luck.

  17. Ana says:

    Thank you for this article, I received a small claims lawsuit from the buyer stating that a $1500 credit for repairs was not given to her. After I investigated I see that my agent never submitted the addendum for the credit in lieu of repairs. I understand that it’s technically going to closing costs, but my understanding is that credits like that reduce the total loan amount for the duration of the loan, however this buyer seems to think she was to receive a check from escrow for the repairs. Is there a way for me to see if the addendum HAD been submitted how the buyer would have been credited? Thank you for your help!

  18. brianm says:

    Hello Ana. A credit in this situation would not reduce the loan amount, it’s literally just a cash credit that would be applied to the buyer’s closing costs. Had the addendum been submitted, the buyer would’ve been credited against their closing costs. So if the buyer closing costs were $6,000, for example, they only would’ve been $4,500 after the credit addendum. I hope that helps.

  19. Cecej says:

    Hello, I had an addendum in my contract of $4000 towards closing cost from the seller. Would that reduce my cash to close price by $4000? Im curious on why my credits from my seller on says $2500.

  20. brianm says:

    If it shows a $4,000 credit from the seller, then that is what you should get. Unless your closing costs are only $2,500? That would be a reason you are only getting $2500, because the $4000 can only be applied to actual closing costs, it can’t be part of a cash credit.

  21. Tyler says:

    Hello I am buying a home and the seller is only giving me a 1,750 credit towards my Closeout cost but the repairs for the windows is at 2,500. We have an admenent already and the seller said this is all they can afford even though I have a home inspection and contractor saying it will cost 2,500 dollars to fix. What should I do? We are looking to close by June 21st

  22. brianm says:

    Hello Tyler. Negotiating seller credits is just that, it is a negotiation. So there is no exact formula, and the seller does not have to give you an amount equal to the repair cost. It is all a negotiation. If they say all they can afford is $1,750 you can counter offer, and go back and try and get more, and if they say no, then you have to decide if that is acceptable to you. If not, maybe you have a contingency in the contract to void the deal? But I don’t know that you’d want to void the deal over a $750 difference. Good luck deciding what to do.

  23. Mic Chew says:

    Selling a property for $700k, buyer writes RPA for $900k and request $200k

    Seller to credit buyer $200,000 for payment to Forever Designs
    Buyer to pay outside of escrow payment from seller to Forever Designs $200,000.
    Is this okay?

  24. brianm says:

    That would never be allowed under any mortgage lender or any mortgage agency I know of. The buyer is trying to finance in a pile of extra cash. Not only is it against the rules, how will a 700k place appraise for 900k? This sounds fishy, and it won’t work.

  25. Jasmine says:

    Hello, I want to purchase a home for 70k, however I’m approved for a FHA loan of 75K. The house is perfect, however there may need to be some repairs under 5k, to apparently get FHA to close. What would you suggest I do.

  26. brianm says:

    If the home needs repairs to pass FHA appraisal inspection then the seller would have to make those repairs prior to closing. Or you can ask your lender if a “FHA Limited 203K Loan” would work in this situation.

  27. Laura M Fernandez says:

    Hi Brian,
    The Inspection reported that some roof tiles are loose and broken, water heater needs to be replaced, A/C duct in need of cleaning and sealing it, and some other stuff. Is is right to write an addendum asking for repairs before closing and asking to sellers’ give credit toward buyers’ closing cost?
    Thank you

  28. brianm says:

    Hello Laura, that should be fine as long as the seller credit doesn’t exceed the actual closing costs. And make sure that they don’t write the addendum stating that the closing cost credit is in lieu of the repairs, they should just write that they’re giving you the seller credit, period. Consult with your lender first, but this should be fine.

  29. Lindsay says:

    If the buyers received $9500 in seller concessions and the lender said it was ok for them to receive $5500 towards their closing costs and then on a separate addendum ask the seller to write a check for the remaining amount to a construction company so they can utilize that for the repairs instead of using it towards their actual loan. Is that ok? I thought there was no way a buyer could ever utilize concessions towards anything outside of the loan or their closing costs. The work would not even be completed until after closing and it would be on the buyers behalf with that check? It’s a conventional loan 20% down closing in one week.

  30. brianm says:

    I did not think that would be allowed, I don’t think we’d never allow that. I would talk to the lender more for explanation surrounding the logic for doing it that way.

  31. Janice Wooddy says:

    Thank you for this thread. We’re in the process of buying a home, FHA loan. Sellers are paying 3% in closing costs. After the inspection, we asked for some repairs to be made, but the sellers offered $3000 credit on top of the 3% toward our closing costs. We asked for it in the form of a check so we can make the repairs, and the title company said that it’s possible. We started asking some questions about it, such as is it legal, and is it taxable, and both the title company and our agent are being vague about. Now, we’re nervous since we don’t want to do anything that’s illegal or be stuck with a tax bill for the 3k. Not sure how to proceed. Thank you.

  32. brianm says:

    Hello Janice. FHA allows the seller to contribute up to 6% of the sales price towards closing costs.
    But there are a few important points to making this work.

    1. You have to have enough closing costs to use up the credit. For example, if they have now agreed to give you a total of $12,000, but your closing costs are $10,000; you’d lose that last $2,000. A seller can’t give you the difference in cash. So if you are short on costs, ask them to buydown the interest rate by paying discount points, to increase your costs to use up the full $12,000. At least you’ll not leave any $$ on the table.

    2. The sellers can’t write you a check for the extra $3,000 outside of closing, that would be a violation of the FHA rules, which require that the seller not give you cash, but only give you credits towards your closing costs.

    Or, if the sellers don’t want to give you the extra $3,000 towards your closing costs, they can simply do the repairs prior to closing.

  33. Anna Lynn says:

    I have a closing in less than 3 weeks. The VA loan they secured passed, however the buyers wanted me to fix some minor repairs which came to appr. $700. Originally we agreed to fix the items but then settled for $1000 credit because of stay at home order. Now their addendum reads, “… credit towards the closing and other pre paid items with all other terms remaining in full force and effect”. I see from your article that this is the way to go but does this protect me from them coming after me on the original repair agreement we made, or even making the repair themselves and charging extra? Should I insist on a separate addendum to cover ourselves? Or is this something I should sign in good faith? Thank you!

  34. brianm says:

    Hello Anna. I believe in most contracts there is an addendum that is signed that says the home inspection contingency is released by the buyers, meaning they relinquish any right to ask for repairs. If that has been signed, you are OK. If not, ask your realtor if that exists in your area, or if not, if a separate addendum can be created to address this.

  35. Anna Lynn says:

    After sending you my question earlier I followed up with my realtor to try an obtain an email from the buyers assuring us that they were fully aware that the credit towards the closing was in lieu of the credit for the repairs previously agreed to. I did not think to ask them to sign off on a second addendum that would say that the home inspections contingency was released. That’s great advice and I will ask both my realtor and attorney. Thank you!! Stay safe during these difficult days!!

  36. Craig says:

    We are purchasing a property and using VA benefits. After the inspection, we negotiated with the Seller who agrees to pay for a new roof (~$25,000) and provide an additional $6,000 for other repairs. The seller does not want to complete the work prior to closing and we prefer to manage the jobs to get the quality we prefer and have the warranties be with us. The house appraised at the value we are buying it for. The lender is providing lender credits which will cover $5800 of our closing costs with only $400 remaining, so there is no benefit to us of having the seller pay closing costs. We do not want to reduce the price and pay for it ourselves as the $31,000 is a lot of cash to us.

    Since they cannot give us a repair credit at closing, can we instead have the seller pay the contractors directly using proceeds from the closing? The repairs will not get done til after closing. What other way can we structure this?

  37. brianm says:

    Hello Craig, some lenders will approve having the contractors directly from proceeds. If they allow it you’d need to provide your lender with invoices for the work at closing, and the title company would take the money from the seller at closing. Check with your loan officer who will check with their underwrite. Good luck.

  38. J says:

    Hello Brain, I am in escrow with horrible sellers (investors). Although they agreed to credit me 11k in remedy for basement waterproofing they don’t really want to write a check to me which I understand but the quote I got was just the fastest company I could get out there as most had 2 week wait for estimates. The sellers are wanting to write a direct check to the company on the estimate I wouldn’t not mind but I just feel that I should’ve gotten more quotes. The basement is finished too and they will not be crediting to put the drywall back up it will be something I have to pay for in the future. I also have 10k in other repairs outside of this.
    How can I have my agent request the money rather than a direct check to the company? Purchased price is 229,000 closing cost is about 4,700 (I am paying them) we’re in OH if it matters.
    They are being very hard to work with lack a ton of communication so I have to be clear on what I want.

  39. brianm says:

    Hello. the only way Fannie Mae or an underwriter will allow a seller to credit you money is:
    1. paying a “seller credit” towards your closing costs.
    2. paying a contractor directly out of their cash proceeds at closing.

    I am afraid there are no other allowable ways.

  40. Ashley says:

    Hello, I am interested in a house that seems to potentially have a roof that’s at the end of its life. The seller is motivated & I have reason to believe they will agree to pay for the new roof once they get the money from closing.. I’m slightly confused after reading the previous questions…So if they can only cover my closing costs in contract & the goal is not to disclose roof issues to the lender, how would they be able to pay the roofers directly? How would the lender not know about these repairs if we’re setting up an agreement to have the seller pay the roofers? Also, the floor is slightly slanted in one room bc the house is old & it settled. The support looks good in the crawl space. Will a conventional home ready mortgage be denied simply from having a slanted floor? Thanks for any info you can offer! I really appreciate it!

  41. brianm says:

    The lender can know about a repair if it’s not one that an appraiser alerts them to being structural. The seller can pay for a repair at the settlement table usually. But this is all lender specific. You’re going to have to clear this with your lender. I don’t think the slanted floor is an issue, but that’s going to appraiser specific. You’ll have to see how the appraisal comes back on that one. Good luck.

  42. SJ says:

    Hello,

    I just had a pre-purchase home inspection completed and all of the windows need to be replaced. I got a quote for $8400. The current contract on the home is full asking price + $5000 in seller credit towards closing costs; buyer pays for title and insurance.

    I read above that lenders will not allow sellers to cover home repairs at closing unless the lender agrees that the seller can pay a contractor directly with proceeds from the sale. How do I word my counter offer to ask the seller to cover the cost of the windows at with proceeds from closing?

    Thank you!

  43. brianm says:

    Your realtor should know how to word that, but you’d just literally ask them to pay the contractor out of their proceeds at closing.

  44. buying with VA mortage home agreed price $470k inpestion shows roof at end of life, oil tank rusty and basement water penetration issues how do we as for either repairs, credit at closing or price reduction since its VA not sure. please help!

  45. brianm says:

    Hello Eleanor. Those sound like pretty expensive repairs, I don’t think you’ll be able to get a seller credit for all of it, because my guess is you won’t have closing costs equal to the amount of what it will cost to fix the problems. And a price reduction doesn’t put cash in your pocket immediately to pay for those repairs. Maybe you could do a combination of getting some money credited towards your closing costs, and getting some price reduction, and that will have to be satisfactory.

  46. Warren R Mills says:

    I have a buyer who asked for a 8000 appliance allowance and I agreed. I assumed since this is not new construction, they would buy or have appliances and they would get a check at closing. They have now requested I buy the appliances because they have to be ordered and they would like them installed before closing. I don’t think they have the money and really, neither do I, to buy them before closing. Any suggestions?

  47. brianm says:

    Hello Warren. When your buyer’s loan gets into underwriting, they’re going to reject the $8,000 appliance allowance. That’s not allowed. You can only have a seller credit monies towards closing costs, not appliances or repairs. If you don’t have the money the only choice I see is to rewrite the contract and say that the $8,000 will be applied towards closing costs, that will reduce their cash needed at closing, and then after closing them having $8,000 more money on hand, they can buy the appliances on their own. I don’t see any other options.

  48. Kathy says:

    Buying with an FHA loan and after inspection there are issues with the HVAC system, both the furnace and ac unit need to be replaced, we don’t want seller to do repairs we’d rather take care of it ourselves.. How do i ask my realtor to write this up to get the most $ for replacements?

  49. brianm says:

    Just ask your realtor to write up an addendum requesting the seller to pay an amount of your closing costs that equals the replacement cost. But you have to call it a seller credit for closing costs, not a seller credit for repairs. And the amount that you were asking for cannot exceed the amount of your closing costs.

  50. Arslan Chaudhry says:

    Brian, great article! I’m buying a repo from Fannie Mae. 251k price and I’ve 6k in closing costs on a conventional 3.5% down. After some intense negotiations we have fane Mae agree on the roof needs a replacement however this is how they have worded the addendum: “seller agrees to provide a $6000 repair credit to buyer for roof replacement”. Now after reading your article, this presents as problematic. I’ve sent the addendum to my lender for review before I sign it. But my realtor appears to see no issues with it. I wanted to see what you think about it? And how do you think it should be worded. Keeping in mind that dealing with Fannie Mae REO is like pulling teeth when it comes to their contacts.

  51. brianm says:

    That is 100% a problem for the lender.
    It needs to say, ““seller agrees to provide a $6,000 credit towards buyers closing costs”.
    And you need to actually have $6,000, or more, of closing costs for that credit to be applied to.
    It is a “use it or lose it” situation.
    Good luck.

  52. Brian, great article! I’m buying a repo from Fannie Mae. 251k price and I’ve 6k in closing costs on a conventional 3.5% down. After some intense negotiations we have fane Mae agree on the roof needs a replacement however this is how they have worded the addendum: “seller agrees to provide a $6000 repair credit to buyer for roof replacement”. Now after reading your article, this presents as problematic. I’ve sent the addendum to my lender for review before I sign it. But my realtor appears to see no issues with it. I wanted to see what you think about it? And how do you think it should be worded. Keeping in mind that dealing with Fannie Mae REO is like pulling teeth when it comes to their contacts.

  53. brianm says:

    If you already have a $6000 seller credit towards closing costs, you’re near the limit of what Fannie Mae will allow in seller credits. Trying to get another $6000 will exceed the seller credit limit, which I believe on the program you’re using is 3% of the purchase price. If you’re getting a traditional Fannie Mae/Freddie Mac loan, you cannot get a credit towards repairs. But I’m not aware of any 3.5% down conventional loan. A 3.5% down loan sounds like an FHA loan, where the limit on seller credits is much higher. You’re going to need to talk to your lender and clarify exactly what type of loan you are using, and ask them if it’s possible to get this last $6000 in the form of a seller credit, I’m not aware of any loan program that allows repair credits, whether that be conventional or FHA.

  54. Mando says:

    This is very helpful. Thank you!
    I am buying a house for $378,000 sale price and $10,000 in seller assist. Then after inspection, we realized the roof, the HVAC are end of life with other plumbing and electrical issues. For our conventional loan, we can only have 3% max closing cost credit leaving us only with $1,370 remaining to request. We plan to get a contractor/roofer onsite for estimate.We do not really think price reduction will help us with these repairs. From what I read above, it seems like my best options is to have an agreement with the seller that put some money in an escrow account dedicated to these repairs. Please advise on my best options or what I should do differently. or should I even consider FHA? thanks

  55. brianm says:

    You’ll have to check with your lender, I do not know of any lenders that allow escrow accounts for repairs. FHA is not an answer because while they allow more seller credits, you won’t have enough closing costs for the credit to cover. Seller credits can only go to closing costs not repairs. Good luck.

  56. Monica says:

    Hi. I just finished the inspection on a house we are in escrow for. The report came back saying the A/C is original from 1989, so 31 years old. However, it is currently in working order. Is it unorthodox to ask the seller to provide credit towards a new one even though its still in working condition? He said it definitely is end of life and is surprised the it’s lasted this long.

  57. brianm says:

    It would be a little unorthodox to ask for money for something that isn’t broken yet, yes. But I’ve also seen it done, so it’s not an outrageous request. Real Estate is all a negotiation, so it can’t hurt to ask. The worst thing they can do is say no. Just remember that the contract language has to say that any money the seller gives you will be a credit towards your closing costs, you can’t mention that it’s for HVAC replacement.

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