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 sellers 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 such are Fannie Mae, Freddie Mac, FHA, and VA. They 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. Examples would be a chandelier, pool table, or patio furniture. No consideration can be given in the sales contract for items like this. An underwriter would be OK if they saw language in an addendum agreeing that the items that are conveying are assumed to have no value, and are not part of the sales price.
Get Started with Brian Martucci
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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”.
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?
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.
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.
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.
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.
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.
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!
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.
Brian,
Thanks for the fast response!
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
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.
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.
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
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.
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?
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.
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!
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.
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.
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.
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
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.
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?
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.
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.
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.
Hello, We had accepted an offer that the buyer wanted $5500 in closing cost and what ever left for new washer and dryer. We were hesitant to accept because this was a large credit, yet our asking price was high to accommodate a lower mid bid. The original purchase agreement said this credit to go towards closing cost, escrow, points,etc. Now close to closing they send over an addendum that stated we agree upon the extra credit given to be used for washer and dryer. The closing credit still $5500. We do not want to give our profit away for a shopping spree at home depot gift cards, as this was stated they would receive a Home Depot gift cards. My husband refuses to sign this addendum and had words with our agent. Our agent hasn’t replied back to us with our answer, can you tell me what would happen if we continue to refused to sign this addendum ? We are days before the closing date. One more question if they were using this money for closing cost, and if the closing cost was less, would they refund the portion back to us the seller ?
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
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.
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.
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.
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.
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.
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!
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.
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!!
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?
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.
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.
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.
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!
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.
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?
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!
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.
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!
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.
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?
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.
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?
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.
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.
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.
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.
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.
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
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.
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.
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.
The buyer got an agreement from the seller on $7000 credit for repair. Is this will reflect on the franchise tax board withhold during escrow? If I ask the seller to pay outside of the escrow with a check, will the amount of the franchise tax board withhold go up?
The seller of a second home we are interested in happens to own his own contracting company. Would it be possible to offer $X for sale of the property and as part of the sale price include a significant credit for work to be done to renovate the property? I believe the property would appraise for the full sale price even without the renovations done.
Thank you for the inquiry. I am afraid that Fannie Mae and Freddie Mac would not allow a credit for work to be done to renovate the property. The only thing the seller can credit towards existing closing costs.
Hi Brian, I am in California and I just found out that the tile roof on the home I wish to buy has no underlayment or sheeting. Apparently 40+ years ago they did not do that. The tiles are perculating and it just has reached its life span. The gutters are shot also. Prior to finding this out the Seller was asking $445,000 I offered $400,000 and he came back with $419,000 and I pay Septic and Well inspections. This was prior to inspections. I have been told it will cost between 45,000 and 50,000 just for the composite roof on a 3,000sq foot home. How do I structure negotiation of this roof…? What if there are additional Sec 1 items that show up in the Pest report next week….
Hello Marian. Thank you for the inquiry. That’s going to be difficult because you can only have a seller credit you money towards closing costs. And you won’t have anywhere near $50,000 in closing costs. The seller is probably going to angle for you to buy the house as-is and replace the roof on your own after settlement. After all, they probably priced it in their minds without them contributing to any significant repairs. If you want them to replace the roof they would likely want to renegotiate the purchase price. And I don’t know that they are going to want to put on a new roof and delay settlement while they spend time doing that. They’re also going to be hesitant putting money into a new roof just in case the deal falls apart, and then they put on a new roof for no good reason, when the next buyer may be willing to pay for a new roof on their own. This is something you’re going to have to talk to your realtor about and see how this can be handled. It may be that you have to buy the house as is and handle this on your own after closing.
Seller credit was equal to buyers closing cost. The buyers loan also included this same amount of closing costs above the seller price for the home. For example, seller price $260,000, which was agreed by buyer. The seller credit is $9,589, which was the buyers closing cost. At closing, the sellers proceeds from sale were reduced by the seller credit of $9,589. The buyers loan was for $269,589 ($260,000 price + $9,589 closing cost). It seems like the buyers closing costs is being paid twice because the sellers proceeds was reduced and the buyer is financing the same costs through the loan. Should it be one way or the other? Is there an offset or should buyer receive a check for $9,589?
Hello Lynn. Is this a VA loan? Maybe the buyer and seller negotiated the price to be $269,589 to include the seller credit. Many times sellers won’t pay for a seller credit but they’re willing to build it into the price. If that’s the case then the numbers that you’ve shared with me are correct. But if the actual contract price is not $269,589, but it is only $260,000, then the loan amount should not be increased by the amount of the closing cost credit.
Great article.
We just had our home inspection done, and both the roof and HVAC unit are going to need to be replaced withi 3-5 years. There are also lots of small repairs needing to be done. The seller is motivated, as they have already moved and had an offer fall through before ours.
Is it appropriate to ask for the full 3% allowed (which wouldn’t cover both roof and HVAC, but would cover closing costs).
In this situation, should we ask for some amount of repairs and seller credits? Or just ask for credits and be happy if they accept.
I would just ask for the 3% seller credit and be happy if they accept. I don’t think you’re going to be able to get anymore anyway, per the mortgage guidelines. Good luck.
I honestly think my buyer’s agent is clueless or secretly working for the sellers. Was pushed into offering higher price on house because it was supposedly built in the early 2000’s. After inspections, discovered house is pre-1950’s and in need of serious updates and repairs. Asked my agent about seller credits and credit alternatives. Her opinion: because appraisal will likely come in low, sellers will use “credits” to make up the difference between high offer price and low appraisal value to ultimately net me $0.00 in repair assistance. She said, “NO” to having any funds apply toward my closing costs and “NO” to having any funds set in an escrow account. So, am I just out of luck and forced to terminate? I can’t possibly afford the repairs needed on my own. By the way: I have conventional financing.
Your realtor is saying they’ll likely use closing cost credits to make up an expected low appraisal.
You want closing cost credits to make up for a house that is older than you thought and in need of repairs.
Do you have an appraisal contingency? If so, use the appraisal contingency to negotiate the price lower when/if the appraisal comes in low.
Then try and negotiate a seller credit separately for the repairs. But if the repairs are extensive you may not have enough in closing costs to equal the cost of the repairs.
Although if you are in a sellers market, the seller may balk at lowering the price combined with paying credits for repairs.
You have to remember that you are not buying a new construction home that is expected to be perfect, you have to account for anticipated repairs and renovations in your offer price.
I think I’d focus more on the low appraisal, if it comes in low, and negotiate hard on that, than I would the repairs.
There may be others that would buy the home, do the repairs, and be happy to do it, and they may see the home go up in value after the repairs to compensate them.
It’s hard to say more without having the appraisal in, and knowing the address, knowing the marketplace, and knowing the home inspection results. This is where you need to lean on your realtor.
Good luck!
Can we still submit adendum? We sent binsr to seller, we asked for 24k price reduction, as inspection /roof specialist revealed home needed full replaceemnt roof cost $24,000 for underlayment, remove of tiles and replace of tiles and for the rotted fascia/eaves/wood etc. we asked for 20k price reduction and termite treatment. Seller responded back on binsr of 10k price reduction and termite treat. can we STILL send back our binsr as YES but adendum of 15k total price reduction and NO termite? We are trying to get the home,negotiate, the closest price reduction to 20k, but did not budget on 24k for a roof, if they can price reduce 15k it would make the deal for us, but at only a 10k reduction, we may walk, as roof is costly.
I don’t think it’s ever too late to submit an addendum, as long as you have enough time before the closing date. If you’re just asking them for a price reduction, and not asking them for a credit towards your closing costs, that should be an easy one. Just get your lender the addendum as soon as it comes through. Good luck.
Buying a house in NJ, inspection came back with major issues: damaged floor joists and girder, 40yr old boiler that is leaking, evidence of underground oil tank, illegal sump pump setup, and old corroded chimney that has water intrusion. Seller verbally acknowledged structural beam and sump pump issue with promise to rectify, the other 3 issues seller claims he did not know about, had chimney and boiler further inspected chimney needs 7800 in repair and boiler replacement is 13000, oil tank removal is in the contract so seller has no choice but to deal with it, when discussing with my lawyer I told him my first choice would be have the seller repair and if not then offer seller credits, my only concern now is that my closing costs are only 10,000. Does the seller have to agree to complete all repairs not that surpass the 10,000 credit limit prior to closing along with giving credit for deal to work? Or can seller agree to pay out of sale proceeds for repairs at closing?
Since the repairs exceed your closing costs, and the seller can only pay your closing costs, your only choices are:
#1 the seller hast to do all the repairs prior to closing. That usually does not happen.
#2 the seller can get the work done now and have proceeds taken out at closing to directly pay contractor invoices. The $ can’t go to you, it has to go directly to pay contractor invoices from the title company.
#3 if all the work will cost $20,800, the seller can credit you $10,000 towards your closing costs and you can take that money to do some of the work after closing, and then the seller can do $10,800 of the work now.
But sellers usually don’t want to pay for any work out of their own pocket, so I think option #2 may be the best path. Good luck.
Firstly, thanks for writing this article!!! I’ve ready every comment and truly learned some things from this, which I def appreciate! I read that cash at closing was illegal and became dejected lol, but all hope is not lost after reading this! My situation: Under contract on a house for $345k, seller agreed to pay $5k. After inspection, structural repairs amongst other things needed to be repaired. Im mainly concerned with the structural issues, of which I had a contractor come out and his rough estimate was $20k. Right now, my closing costs are just under $10k. I understand that my options might be price reduction, seller credits to closing costs, play around with interest buydown, ect. In reading the last scenario (comment 70-71), I’d say if the seller agrees to repairs, he’s likely to go with option #2 above, but what if there is not enough time to complete these repairs before closing? Is my only option to push the closing or lose out on $? Thanks!
We will soon be listing our home. Furnace and AC are both original (house is approx 24 years old), but in good working order. We would like to offer a year warranty protection paid, for “peace of mind” for the buyers in lieu of replacing them. Will a mortgage provider be ok with this arrangement, or are they likely to insist on replacement?
Seller has agreed PICRA repairs of $2k but now seller won’t pay for PICRA repairs. Buyer doesn’t have money for this, but house appraised over purchase price, so want to raise purchase price $2k to pay for repairs. Do we need to amend the PICRA to cover where money for repairs are coming from? Don’t want to raise red flags with Underwriting. Any suggestions?
I’m building a house and the builder agreed to give $14k in seller credits. They later sent a final Closing Disclousure that stated they’d only be giving $7k in seller credits, leaving me with a higher cost to close than expected. Is this legal for them to do? Can I hold them to the initial disclosure that I signed?
Thanks
Hi Brian, not sure if you’re still answering. I’m selling a home for 305k and agreed with the buyer on $7800 in repairs. We signed, and then he now is asking for those numbers to change to $303k and $5800 in repairs. The net math is the same so why is the buyer doing this? I feel like it is related to this topic, but he doesn’t explicitly say this is for closing costs, he just says “amount to be applied in the following order: Buyers expenses which Buyer is prohibited from paying by FHA, VA or other Governmental loan programs, and then to other Buyers expenses as allowed by the lender.”
Their lender’s pre approval letter was a private lender, LockIt lending.
Thoughts?
Hello. I am still answering, thanks for the inquiry. That math is indeed a little bit curious. But maybe he’s doing a type of loan where the closing costs are so low, that he can’t fully use a $7,800 credit towards those closing costs. So instead, he’s taking $5,800 in credits and the $2,000 lower home price. That might be the case. But the contract can’t say that you’re crediting him money for repairs, it has to say that you’re crediting money towards the buyers closing costs. But if the addendum says that you are to pay money towards the buyers expenses, as allowed by lender, that should cover it. I think you’re OK, I don’t think there’s anything untoward going on here. Good luck getting things closed.
Thanks for the reply! I was confused because I wasn’t sure what closing costs they have. I’m paying the realtors, the title company, …etc.
Let me know what ends up happening. Good luck! Happy to offer more advice if needed.
Hello, we are about to close on a house in a few days which includes a signed “amendment to address property concerns” document with the seller that states the seller agrees to give us, the buyer, a repair allowance in the amount of $XX at closing. We were told by our realtor that this would be placed in escrow to be used for repairs after closing. Our mortgage lender called today that this is now an issue because the sellers don’t have this full amount of cash to bring to closing up front and were planning to use their profits from the sale of their home to give us this repair allowance. They only have a portion of cash they could bring upfront at closing if necessary. The mortgage lender now states that since this would occur after closing they don’t like this agreement. The closing attorney is trying to get in touch with the sellers and their listing agent to try to work this out but what happens now? Is there any way around this to make sure the sale doesn’t fall through?
One problem with the approach that they are taking right now is that lenders don’t typically allow a repair escrow. So I don’t know why the lender let things get worded that way. Further, are you saying that the seller won’t have the funds to get you the agreed-upon amount as part of their profits of the sale of the home to you? Or are you saying that they don’t have that cash in advance of the sale of the home to you? If they don’t have the cash now, all they need to do is reword an addendum stating that buyer and seller agree that seller will pay $X dollars at closing to you as a buyer. That’s all that needs to be said. The seller will get the money taken out of their profits, as opposed to paying for it now. Then you’ll get a credit towards your closing costs that you can use, and then you’ll have more money left after settlement, to use for the repairs. Or are the repairs so significant that they exceed the closing costs that you’ll pay at closing?
Sorry it wasn’t clear, they won’t have this cash in advance of the sale (at closing). They were counting on providing the agreed upon amount after closing on our purchase of their home by taking the profits of the sale to give back to us for the repair allowance. Our lender doesn’t like agreeing to this closing cost arrangement because the repair allowance is for $20K which I believe the lender stated is more than the maximum closing costs they are allowed to pay for us based on how much we have put down. (3% on a $350k house). We would have to pay 10% down in order to allow them to pay $20k in closing cost which we are not able to do. Our current cash to close is a little over $14k.
not sure if my comment got deleted but yes the repair allowance is greater than our current closing costs and they do not have this amount of cash in advance of closing, they were wanting to use the profit from selling their house to give us this repair allowance after closing. Our mortgage lender doesn’t like this and needs them to bring more cash to closing or have us pay more down payment to raise the closing cost and the maximum percentage of closing costs that they could pay as seller credit. Is there any other way to avoid us paying more down payment?
OK, now I understand. Thank you for explaining. Maybe what you could do is have the seller give you a credit towards your closing costs for as much as they possibly can, and then, with the remaining amount that they still owe you, they can pay invoices at closing directly to contractors for the repairs. I have done this before. I’ll give you an example. Let’s say you get a $5,000 seller credit towards your closing costs (because that is all that is allowed), but they still owe you another $3,000. Maybe you could have contractors write up invoices for $3,000 that the seller can pay directly to the contractors out of their profits at closing. The money is not going to you, it is going to contractors, so it is allowed. But of course the contractor payments are technically still for your benefit.
We are selling the house we live in now. Buyers are using FHA, and can’t afford closing cost of $5,000. So we agreed to pay for closing cost. However, after home inspection, buyers found minor repairs, electrical, plumbing, hvac, and joists issues that they want us to do prior to closing. Is this a fair deal for us to do repairs after agreeing to pay 100% of closing cost?
I’d have to know more details. What is the sales price of the house you are selling? What is the dollar cost estimated to be on the repairs? And what state and county are you in? I ask because I doubt $5,000 pays “all” of their closing costs. Closing costs are usually at least around 3% of the purchase price. Also, are you sure they could not afford the closing costs? Or were they simply negotiating the best deal that they could. It would also be good to know if the house appraised for the contract price, or higher. The bottom line is that it is all a negotiation, based on the market that you are in. If you are in a market that is slower to sell homes, you may want to pay it. If the market is balanced, maybe split the cost. But if you are in a seller’s market, maybe you can push back and say that you will not pay anything towards repairs. I think this is a question more for the listing agent realtor who is representing you, they are probably best equipped to answer.