Closing Cost Credit / Concessions Explained
What Is a Closing Cost Credit or Concession?
A closing cost credit (or seller concession) is money the seller agrees to give the buyer at closing, typically to help cover the buyer’s closing costs. It’s not cash handed over, but rather a credit applied on the settlement statement to reduce the amount of cash the buyer needs to bring to closing.
This strategy is often used to make a deal more affordable for buyers—or to help sellers attract stronger offers in a slower market.
🔑 Key Components of Closing Cost Credits
1. How It’s Structured
Closing cost credits are negotiated during the offer stage and appear as part of the purchase and sale agreement. For example, a buyer may offer $510,000 on a home listed at $500,000, with a $10,000 credit back at closing—effectively netting the seller the same amount.
This approach allows buyers to finance their closing costs as part of the mortgage while keeping upfront expenses lower.
2. 2. What Can Be Covered
Closing cost credits can typically be used for:
Attorney fees
Title insurance and recording fees
Appraisal and lender fees
Prepaid taxes or escrow reserves
However, they cannot exceed the actual amount of closing costs, and lender rules may limit how much is allowed.
3. Lender and Loan Limitations
Most lenders cap the allowable credit based on the loan type:
Conventional loans often allow 3%–6% depending on down payment.
FHA loans allow up to 6%.
VA loans may allow full concessions but with specific rules.
Your mortgage lender will confirm what’s allowed based on your loan and down payment structure.
4. Massachusetts Market Use
In Massachusetts, especially in areas like Metro West or North Shore, credits are common when:
A home inspection reveals issues, and a seller offers a credit instead of repairs.
A buyer needs help covering costs without lowering the sale price.
The market is soft, and sellers use credits to stay competitive.
It’s a flexible tool that helps keep deals moving and often benefits both sides.
💡 Why Closing Cost Credits Matter
Closing cost credits help buyers reduce out-of-pocket expenses, especially when they’re stretched on down payment or faced with unexpected fees. For sellers, offering a credit instead of making repairs or reducing price can protect the bottom line while keeping the transaction on track.
In a dynamic market like Massachusetts, knowing when and how to use concessions can help buyers strengthen their offer and help sellers close faster—all without drastically altering the final sale price.
FAQ’s
What is a closing cost credit or concession?
It’s a seller-paid credit applied at closing to help the buyer cover their closing costs—reducing how much the buyer needs to bring to the table.
Will my lender allow a closing cost credit?
Most lenders do, but the allowed amount depends on your loan type and down payment—typically ranging from 3% to 6%.
Can a credit be used for anything I choose?
No, it must go toward allowable closing expenses like lender fees, title costs, or prepaid taxes—not toward a down payment.
Why would a seller agree to give a credit?
Sellers may offer credits to speed up the sale, address repair issues, or help buyers afford the deal without reducing the sale price.
How is a closing cost credit negotiated?
It's usually agreed upon during the offer stage and documented in the purchase and sale agreement.
Do closing cost credits affect the sale price?
Not directly—they’re reflected on the closing statement as a credit and don’t reduce the agreed-upon purchase price, unless negotiated that way.