What r seller credits

Question

I'm trying To run numbers on the bigger pockets calculator. We want to offer 175k on the house and the realtor suggested 6 percent credits. But I'm not sure what that is. Does it buy down the mortgage to 164k? Or does it cover the closing cost and down payment. I'm unsure how to enter this in the calculator

Jason Wray · Answer

Reyna,

When a seller offers a seller credit its a contribution towards closing costs.  The bank uses the loan amount after the down payment.  So on $175K if you go FHA the loan would be $168,875.00 x 6% gives you $10,132.50 in seller credit to pay for closing costs or to buy down the rate.

It does not lower the loan amount it just covers costs.  Getting 6% is very high in this market unless the house has been sitting on the market for awhile with not many offers.

Randa Dehaan · Answer

Yes! For example, if today's interest rate is 7%, it would be 5% in the first year and 6% in the second year, then it will go back up to the 7% in the third year. You can still refinance within this time period too if rates come down before your buydown is through. It doesn't change your loan amount. It will be added to your closing costs but the seller (or builder of the property) has to be the one to pay for it!

Reyna V Ayala · Answer

So there's 2 ways to use seller credits ?

instead of buying down the intrest rate you apply to ur closing expense ? Can you say where to apply it lets say if you also apply for down-payment assistance.

Reyna V Ayala · Answer

Primary residence. So it lowers the intrest paid on the mortgage for the first 2 year did I get that right ?  This is not affecting the closing cost or the total loan amount correct ?

Eliott Elias · Answer

It is another way of requesting 6% of the purchase price to be paid for by the sellers to be applied towards your closing costs.

Randa Dehaan · Answer

Is the purchase for your primary residence? I've been strategizing with my buyers to ask for seller credits to go towards a temporary rate buydown (2-1 buydown). A temporary buydown is paid for by the sellers and actually lowers your interest rate by 2% for the first year of your mortgage and 1% for the second year. This is a great option with today's high rates and gives you time to refinance when rates come down. The lender can most likely plug in your scenario's numbers to see how much credit would be needed to utilize this strategy. It can save hundreds of dollars in your monthly payment for the first two years of your mortgage.

What r seller credits

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