When a buyer asks the seller to help with some of the closing costs is it considered a full-price offer? Well, not quite.
More times than not, as sellers go through the purchase offer, they will discover certain items in the "Additional Terms" part of the contract that the buyer would like for them to pay for some, if not all, the closing costs associated with the sale of the home. In turn, sellers can become upset and see this as a means to reduce the price of the home.
Let's look at it from a different perspective; from the seller's point of view.
For example, if a seller is asking $400,000 on their home and the buyer asks for a credit of $10,000 in closing, nonrecurring costs, the seller may see it that the buyer is offering $390,000 for the house and not the full asking price.
There are times when buyers do use this tactic to lower a purchase price, but there are many times when the buyers are first time buyers and they just don't have the full amount they need for the down-payment as well as the closing costs. This is where the seller can come in and help close the deal by allowing the buyer to save their money by offering closing costs credit and allowing the buyer to focus their money on the down-payment.
Many times lenders put restrictions on how much sellers can credit buyers at the time of closing and the amounts do vary from lender to lender. These restrictions can be anywhere from 3% to 5% of the purchase price.
Usually lenders will allow only the credit for the buyers' nonrecurring closing costs which include one-time-only costs such as title insurance payments and loan fees. Furthermore, lenders most likely won't allow credits for the buyers' recurring costs, such as hazard insurance and/or mortgage interest. There are, however, some lenders that will allow credit for all costs associated with closing including recurring and nonrecurring.
It's important for the buyer to know that sellers cannot extend this credit to the buyers' beyond the actual amount of the closing costs. At times a lender may allow a credit of up to $8,000, but if the buyers' costs are only $4,500, then the maximum the sellers can credit is the $4,500.
The buyer needs to be cautious giving an offer with credit requests in order to obtain a successful purchase of the home. To limit any possible resistance that the sellers might have, the buyer should be prepared to explain how they want the credit to work before going over the final offer price. By doing it this way it can defuse the possibility that the sellers will get upset seeing the offer as a means of reducing the purchase price.
Buyers may also be at a disadvantage to other buyers if they need a credit in order to purchase the home when other buyers may not. It may benefit the buyers to inflate the offer price to cover the amount of the closing cost credit and by doing so it may put them in a more competitive situation with other buyers.
Another way a credit can be used is to resolve any inspection issues that may arise during the sale of the home. Despite the fact that most lenders won't allow the sellers to credit money to buyers for inspection corrections, they may allow credits for the closing costs. Therefore any money that the buyers can save on closing costs can be used later to make the property improvements.