Facebook
X
Pinterest
Copy Link
When buying a home, negotiations often go beyond just the offer price. Two common strategies used to finalize deals are seller credits (also known as seller concessions) and reductions in purchase price. Both can benefit buyers, but in different ways. Understanding the pros and cons of each can help you make a smarter financial decision that aligns with your goals and the specifics of your mortgage.
What Is a Seller Credit?
A seller credit is when the seller agrees to contribute a set amount toward the buyer’s closing costs. This can include things like loan origination fees, title insurance, escrow fees, or even mortgage points to buy down the interest rate.
What Is a Purchase Price Reduction?
A purchase price reduction is a straightforward lowering of the home’s sale price. This means the buyer pays less for the property overall, which can reduce the loan amount and monthly payments.
Pros and Cons of Seller Credit
✅ Pros:
-
Immediate Out-of-Pocket Relief
Seller credits help reduce the cash a buyer needs to bring to the closing table, which is especially helpful for first-time buyers or those with limited liquid funds. -
Can Be Used to Buy Down Interest Rate
Credits can go toward mortgage points to lower your interest rate, potentially saving you thousands over the life of your loan. -
Helps When Cash Flow Is Tight
If you have money for monthly payments but not for up-front costs, a seller credit can bridge the gap.
❌ Cons:
-
Lender Limits
There’s a cap on how much sellers can contribute based on loan type and down payment size. Exceeding this limit means the extra credit can’t be used. -
Doesn’t Lower Loan Amount
Since the purchase price stays the same, your mortgage may be higher than it would be with a price reduction. -
Appraisal Risk
The home still needs to appraise at the higher sale price (including the seller credit), which could cause issues if it comes in low.
Pros and Cons of Purchase Price Reduction
✅ Pros:
-
Lower Mortgage Amount
A reduced purchase price means you’re borrowing less, leading to smaller monthly payments and lower interest paid over time. -
Can Help with Appraisal
A lower price might improve the chances of the home appraising for the agreed-upon value, reducing financing complications. -
Builds More Equity Faster
Paying less upfront means you’re closer to owning more of your home from day one.
❌ Cons:
-
No Help with Closing Costs
While you save long-term, you’ll still need to come up with cash for closing costs unless you’ve budgeted accordingly. -
No Rate Buy-Down Option
If you’re tight on monthly budget, a credit to buy down the interest rate may help more than a minor drop in purchase price.
Which Option Is Better?
It depends on your priorities:
-
Need help with closing costs or want a lower interest rate? Go for a seller credit.
-
Want to minimize long-term costs and build equity faster? A purchase price reduction may be better.
Some buyers even negotiate a combination of both when the seller is flexible.
Final Thoughts
There’s no one-size-fits-all answer. A good real estate agent and mortgage lender can help you crunch the numbers to determine which option gives you the biggest benefit. Whether it’s up-front savings or long-term value, make sure the choice supports your financial picture—not just today, but for the years to come.
