How do seller credits work on a cash home purchase?

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toyotafan_463
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How do seller credits work on a cash home purchase?

Post by toyotafan_463 »

How do seller credits work for a cash purchase?

Purchasing a condo with cash and have been given a $25k credit from the seller after inspection to address some items that were found. Closing costs are only $5k. I’m reading a lot of threads that closing credits can’t exceed closing costs, but this is a cash purchase with no lender. What will happen to the excess credit?
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Re: How do seller credits work on a cash home purchase?

Post by westpac »

revert to the seller?
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fujiters
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Re: How do seller credits work on a cash home purchase?

Post by fujiters »

You may just get a check, but it would make much more sense to simply decrease the purchase price by $25k. It decreases closing costs and property tax based on sale price.

Seller's credits only make sense for buyers that otherwise wouldn't have the spare funds to do repairs (and need to effectively bundle them into the mortgage). Realtors also get paid based on purchase price, so they prefer a seller credit to a price decrease.
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toyotafan_463
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Re: How do seller credits work on a cash home purchase?

Post by toyotafan_463 »

The way the contract is written is that the purchase price can't be changed though apparently?
Normchad
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Re: How do seller credits work on a cash home purchase?

Post by Normchad »

It will be your settlement statement, and will reduce the size of the check you will write to purchase the condo. (It directly reduces the amount of money due owed to,the seller).

I.e. if the selling price is 500k, and the seller is crediting you 25K, you’d write a check for 475k. (Of course there will be a dozen other things on the settlement statement, but that’s the gist of it). Your real estate agent should be able to show you a preliminary settlement statement.
avalpert1
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Re: How do seller credits work on a cash home purchase?

Post by avalpert1 »

It should reduce your cash to close - the only limits on how much of the purchase price can be rebated by the seller at closing come from mortgage companies, if you have no mortgage involved there is nothing to limit the seller from giving you money.
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Re: How do seller credits work on a cash home purchase?

Post by drk »

toyotafan_463 wrote: Mon May 13, 2024 1:18 pm The way the contract is written is that the purchase price can't be changed though apparently?
What does this mean? Who told you this? The contract is just whatever terms you and the seller agree to.
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toddthebod
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Re: How do seller credits work on a cash home purchase?

Post by toddthebod »

toyotafan_463 wrote: Mon May 13, 2024 1:16 am How do seller credits work for a cash purchase?

Purchasing a condo with cash and have been given a $25k credit from the seller after inspection to address some items that were found. Closing costs are only $5k. I’m reading a lot of threads that closing credits can’t exceed closing costs, but this is a cash purchase with no lender. What will happen to the excess credit?
When you go to close, there will be an accounting statement from the escrow company that will add up all the debits and credits and end with a number that you owe. The seller credits will be subtracted from the purchase price. Here's an example:

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nostresshere
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Re: How do seller credits work on a cash home purchase?

Post by nostresshere »

That credit is no different than putting down a payment. It reduces what is owed.

As to re-writing the contract - you can ALWAYS do a new contract - if both parties agree.
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mrmass
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Re: How do seller credits work on a cash home purchase?

Post by mrmass »

Agent would push for a credit as they get less commission if the sales price is lowered.
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toyotafan_463
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Re: How do seller credits work on a cash home purchase?

Post by toyotafan_463 »

drk wrote: Mon May 13, 2024 3:26 pm
toyotafan_463 wrote: Mon May 13, 2024 1:18 pm The way the contract is written is that the purchase price can't be changed though apparently?
What does this mean? Who told you this? The contract is just whatever terms you and the seller agree to.
On the attorney review section of my contract (illinois), it says attorneys can modify anything except the purchase price. Not sure if that actually works in practice though.
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toyotafan_463
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Re: How do seller credits work on a cash home purchase?

Post by toyotafan_463 »

So for the most part, it sounds like closing credit limits only apply in a lender situation. And they don't apply in a cash purchase scenario.
toddthebod
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Re: How do seller credits work on a cash home purchase?

Post by toddthebod »

toyotafan_463 wrote: Mon May 13, 2024 5:46 pm So for the most part, it sounds like closing credit limits only apply in a lender situation. And they don't apply in a cash purchase scenario.
Where did you get that idea? Did you see the sample closing statement I posted above?
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toyotafan_463
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Re: How do seller credits work on a cash home purchase?

Post by toyotafan_463 »

toddthebod wrote: Mon May 13, 2024 5:58 pm
toyotafan_463 wrote: Mon May 13, 2024 5:46 pm So for the most part, it sounds like closing credit limits only apply in a lender situation. And they don't apply in a cash purchase scenario.
Where did you get that idea? Did you see the sample closing statement I posted above?
There are countless threads on Reddit and articles online saying that closing credits cannot exceed closing costs, and any excess beyond the closing costs would be returned to the seller. See example thread at the link below. But based on this thread, it sounds like limits on closing credits don't apply for a cash purchase. They would only apply for a lender/mortgage situation.

https://www.reddit.com/r/RealEstate/com ... ing_costs/
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LiveSimple
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Re: How do seller credits work on a cash home purchase?

Post by LiveSimple »

Your link says as a loan officer
That situation do not account for cash purchase

You can rewrite the contract or get the credit check with your settlement company
Invest when you have the money, sell when you need the money, for real life expenses...
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LiveSimple
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Re: How do seller credits work on a cash home purchase?

Post by LiveSimple »

Your link says as a loan officer
That situation do not account for cash purchase

You can rewrite the contract or get the credit check with your settlement company on the seller credit


Theses terms are for mortgage loans
Invest when you have the money, sell when you need the money, for real life expenses...
gtrplayer
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Re: How do seller credits work on a cash home purchase?

Post by gtrplayer »

I’m not an expert on this. I used to work in mortgage servicing but didn’t do a lot of origination work, so please don’t rely on this alone. But I believe the rule about credits not exceeding closing costs comes from Fannie Mae rules. If there is no loan, then it would make sense that these rules would not apply.

If there is no loan involved, I don’t see why the seller would be prohibited from simply cutting you a check… there’s no law I know of that says someone can’t give you money.

I’m sure the most typical way this is handled is to lower the selling price… otherwise, you’re paying someone who immediately turns around and gives you some of the money back, which seems silly.

In any event, you’re going to want the advice of a real estate professional, who you should be working with already, in my opinion, as real estate law is not simple.
toddthebod
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Re: How do seller credits work on a cash home purchase?

Post by toddthebod »

toyotafan_463 wrote: Mon May 13, 2024 6:11 pm
toddthebod wrote: Mon May 13, 2024 5:58 pm
toyotafan_463 wrote: Mon May 13, 2024 5:46 pm So for the most part, it sounds like closing credit limits only apply in a lender situation. And they don't apply in a cash purchase scenario.
Where did you get that idea? Did you see the sample closing statement I posted above?
There are countless threads on Reddit and articles online saying that closing credits cannot exceed closing costs, and any excess beyond the closing costs would be returned to the seller. See example thread at the link below. But based on this thread, it sounds like limits on closing credits don't apply for a cash purchase. They would only apply for a lender/mortgage situation.

https://www.reddit.com/r/RealEstate/com ... ing_costs/
I misread your sentence, sorry. Somehow I didn't see the word "limit."

Yes, closing credits cannot be used to reduce a down payment if that would put your down payment below a lender threshold (e.g., from 20% to 17%).
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toyotafan_463
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Re: How do seller credits work on a cash home purchase?

Post by toyotafan_463 »

Thanks everyone. Yeah, I just asked my attorney that given this is a cash purchase, what happens to the excess credit that exceeds closing costs? And they responded saying "the credit will lower the amount I need to wire at closing". I am assuming this means I would get the full credit amount at close given there is no lender involved.
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Re: How do seller credits work on a cash home purchase?

Post by investorpeter »

Yes, you just get a credit for $25k on the closing statement. So in this case, if the only adjustments are closing costs of $5k and a seller credit of $25k , the closing statement will be the sales price minus $20k. All credits and debits are just totaled on the closing statement. The seller doesn’t actually give a you check. You just write a smaller check by the amount of the credit.
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toyotafan_463
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Re: How do seller credits work on a cash home purchase?

Post by toyotafan_463 »

Closing the loop on this. I got a copy of the draft settlement statement from my attorney and the full $25k credit is reflected. Looks like no limit on closing credit given it's a cash purchase.
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