Credits to Buyer

Credits to Buyer must be stated correctly in order to be approved by Lender.

  1. Any credit to Buyer, from any source . . . shall be disclosed to Buyer’s Lender . . . using an Addendum to the Agreement.
  2. Lender may limit the amount of the credit to the Buyer.

Note RPA 5.E. – LENDER LIMITS ON BUYER CREDITS: Any credit to Buyer, from any source, for closing or other costs that is agreed to by the Parties (“Contractual Credit”) shall be disclosed to Buyer’s lender. If the total credit allowed by Buyer’s lender (“Lender Allowable Credit”) is less than the Contractual Credit, then (i) the Contractual Credit shall be reduced to the Lender Allowable Credit, and (ii) in the absence of a separate written agreement between the Parties, there shall be no automatic adjustment to the purchase price to make up for the difference between the Contractual Credit and the Lender Allowable Credit.

All credits to Buyer must be stated as “credit for Buyer’s closing costs” or Lender will not approve.

  1. Buyer & Seller may agree to a credit to Buyer for any reason, but the credit always needs to be “credit for Buyer’s Closing Costs.”
    1. Repair Credit – not “in lieu” of repairs, but “credit for Buyer’s Closing Costs.”
    2. Replacement of Carpet – not to replace carpet, but “credit for Buyer’s Closing Costs.”
    3. Replacement of Roof – not replace roof, but “credit for Buyer’s Closing Costs.”
    4. Buyer & Seller may know that the credit is for a specific thing, but it always has to be for Buyer’s closing costs.
      1. This means that the money Buyer would have needed to bring to Escrow for closing costs can now be used to pay for repair, etc.

Other reasons for a Buyer Credit. If Buyer is struggling to come up with down payment funds, it may be advisable to offer a bit more for the Property and have Seller credit Buyer for Buyer’s closing costs.

  1. Seller will basically “net” the same, but it will be easier for Buyer to make the down payment.
  2. Example of a Property listed at $400,000.
    1. Buyer could make full-price offer, with conventional financing, and would need $80,000 for down payment.
    2. Or, Buyer could offer $420,000 with Seller credit of 3% [$12,600] to Buyer for Buyer’s closing costs. Buyer would only need $71,400 for down payment.
    3. This would be even more significant with FHA Financing.
      1. Buyer could make full-price offer, with FHA financing, and would need $14,000 for down payment.
      2. Buyer could offer $420,000 with credit of 3% [$12,600].
      3. Buyer would only need $2,400 instead of $14,000 [3.5% down]

If Buyer’s Agent is crediting a portion of his/her compensation towards Buyer’s closing costs, it must be on an Addendum that is presented to the Lender for approval.

in Buyers, Commissions, Compliance