Key Takeaways
- Seller credits apply to closing costs like title insurance and appraisal fees.
- Price reductions lower your loan amount, monthly payment, and annual property taxes.
- Lenders cap seller credits at 3-6% of the loan amount depending on your loan type.
What's the difference between seller credits and a price reduction?
You're wondering whether to ask the seller for credits toward closing costs or to negotiate the home's price down by the same amount. Both approaches reduce what you pay at closing, but they work differently and can affect your loan and taxes.
Seller credits apply directly to your closing costs—things like title insurance, appraisal fees, and prepaid taxes. The seller pays these costs on your behalf at closing. A price reduction lowers the home's purchase price, which reduces your loan amount and monthly payment. Price reductions also lower the property taxes you'll pay each year since taxes are based on the assessed value.
Both options have limits. Lenders typically cap seller credits at 3-6% of the loan amount, depending on your loan type and down payment. Price reductions don't have similar caps, but the home still needs to appraise for the lower purchase price. Your lender can walk you through how each option affects your specific loan terms and monthly costs.
