By Ryan Pullano

So you’re in the process of buying a new home and the inspection has just been completed. You’re looking forward to getting settled in as soon as possible, but you notice there are some areas of the home that aren’t quite up to par.

closing credits

Maybe you notice that there are cracks forming on the walls or there is noticeable mildew growing on the bathroom tiles. No matter what it is, you know that you’re going to have to spend some money before you move in for good.

If the property you are buying has been put on the market in an “As-Is” manner, you might struggle to get any credits for closing costs. This is because the home has been advertised as it is and the seller won’t be making any changes before it is sold.

If the home is not listed “As-Is” then you may be able to ask for a closing cost credit. If the seller accepts the credit, you will be able to repair the damages without having to endure extra costs after the closing period.

What Is A Closing Cost Credit?

Closing cost credits are given to a buyer from a seller to credit home repairs. In other words, the seller of the property will give you, the buyer, credit towards potential repairs at closing. This means that you will ultimately pay less at closing time.

Sometimes the seller will offer these credits as an incentive for buyers to make a purchase. If the buyer is on the fence about making the purchase when it comes close to the end, the credits make the house more appealing.

Closing cost credits are also known as a seller concession. The credits are negotiable and need to be agreed upon in writing by both the buyer and the seller. This is something that should be done before the amount is credited to the buyer’s final amount at closing.

How Do Closing Cost Credits Work?

It is very important to understand how these credits work because they will affect the entire buying process of your home. Closing cost credits are typically initiated by the buyer in order to gain credit for repairs and damages.

Once the buyer asks for the credits, they work with the seller to negotiate an amount that works for both of them. The seller has the choice of accepting, rejecting or initiating a counter-offer to the buyer’s request.

If the seller accepts the offer or the two agree on an amount, the seller agrees to pay the amount of the credits so that the buyer doesn’t have to. This amount is usually taken out of the final sale of the property with no upfront costs to the seller.

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Benefits Of Closing Cost Credits For Buyers

Closing credits are designed to give buyers a little bit of breathing room right after purchasing a house. For that reason and more, there are a number of benefits for buyers.

The truth is, closing on a house is expensive. There are a lot of different things you will need to take care of after you actually become a homeowner. So these credits give you a little bit of leeway in that sense. They help you save money, time, and energy.

Benefits Of Closing Cost Credits For Sellers

Believe it or not, closing credits are also beneficial to sellers too. Although it might seem as though they are paying out money to the buyer, what they’re actually doing is giving the buyer the opportunity to make a purchase.

If the seller has a house that needs a lot of upgrades then the advantages are even more apparent. In order to get the home up to date and pass inspection, the buyer will want an incentive. Offering them credits at closing is a great way to achieve this.

Closing Cost Credits Are A Win-Win For Both Parties

If the bathroom tiles are worn, tattered or outdated, they probably need to be updated or replaced. Since it generally costs thousands of dollars for a new bathroom having some money taken off the final sale of the house is a huge win.

When the offer for closing credits is there, you are more inclined to make the purchase as you will have the funds to do everything you need to do to the new house. This makes it a huge win for the seller to have a quick sale.

It is important to note that some mortgage companies will need the buyer to use all of the money to pay towards closing costs such as taxes. Closing cost credits might not always cover the closing costs, but they will help considerably.

So when you look at the bigger picture here, the credits are actually a win-win for both the buyer and the seller.

Do Closing Cost Credits Come Out Of The Seller’s Pocket?

We mentioned this point briefly, but another thing to note is that the seller is not really paying for the closing costs credits out of pocket. The actual money being paid to the seller is seen once the closing cost credit has all been accounted for.

In other words, the credit comes out of the final sale. Think of a closing cost credit as giving the buyer a discount on the house in order to get them to purchase it. When you look at it this way, the seller isn’t losing any out of pocket money.

Tax Implications of Closing Cost Credits

Now you might be wondering what the tax implications are when it comes to these closing cost credits. During a real estate transaction, the closing costs represent the fees that make the actual sale possible.

They usually end up being thousands of dollars from the buyer to settle with lender companies and escrow. Though each transaction is completely unique, buyers can actually benefit when paying taxes for the credits.  To deduct seller-paid closing costs, the buyer must use the itemization method for taxes.

There are a few definitions to take note of when it comes to tax implications so below is a brief summary of each.  You should always consult with a tax advisor for specific information regarding your individual situation.

Seller Credits

This is the dollar amount of closing costs that the seller agreed to pay. With seller credit at closing for repairs, buyers can make an offer with the caveat of a seller credit and the seller might counter back with a reduced amount or another type of credit.

Borrower Points

Sellers might agree to pay for borrower points. Borrower points are percentage points of the mortgage amount. The more points that are paid, the lower the rate. Even though the seller pays them, you as the buyer can still deduct points on a tax return as they count as mortgage interest.

Seller Deductions

Such a seller payment is regarded as a reduction in the net gain of the home. The lower the net gain, the lower the gain will be for taxes that the seller will have to pay.



For many people, the process of obtaining a residential mortgage is intimidating and complex. Whether you need help with understanding closing cost credits or have other questions regarding your mortgage, A and N Mortgage is here to help. We are an experienced and well established Chicago mortgage company that offers a team of professionals who will work with you every step of the way.  Contact us today to speak with a mortgage specialist and discuss your options.


A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.


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