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:
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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