By Mike Baker | The Rate Shop | NMLS #259076
A lower purchase price is not always the most useful thing to negotiate. Seller-paid closing costs may keep more money in your pocket at closing, help pay for a lower interest rate, or temporarily reduce your payment. A price reduction lowers what you pay for the house and can reduce your loan balance. The right choice depends on your budget, available cash, how long you expect to keep the loan, and how much seller credit your loan allows you to use.
If you have room to negotiate, I want you looking at more than the number on the purchase agreement.
What happens to your monthly payment? What happens to the cash you need at closing? What does the loan cost over time?
Those are the numbers that help us decide whether to ask for a lower price, seller credits, or a combination of both.
For buyers in Kansas and Missouri, I work through that comparison with you and your Realtor before the offer goes in.
What is a seller credit?
A seller credit is an agreed contribution toward eligible buyer expenses at closing. Depending on your loan and the agreement, it can cover closing costs, prepaid expenses and interest rate buydowns.
It can help you keep your own savings instead of spending that money on eligible costs. It is not an unrestricted check from the seller, and it does not replace your required down payment.
What could $10,000 do on a $400,000 home?
Here is a worked example showing why I want to compare the options before your Realtor writes the offer.
Assumptions: A $400,000 purchase, 5% down, a $380,000 conventional loan and a 30-year fixed term. The starting interest rate is an illustrative 6.75%. Assume $10,000 in other eligible closing costs and prepaid expenses, separate from any buydown cost. These are comparison assumptions, not a current interest rate offer.
| Option | Monthly principal and interest paid by buyer | Estimated cash needed* |
|---|---|---|
| Starting point: no concession | $2,464.67 | $30,000 |
| $10,000 lower price | $2,403.06 | $29,500 |
| $10,000 credit toward closing costs | $2,464.67 | $20,000 |
| $10,000 credit split between a 2-1 temporary buydown and closing costs | Year 1: $1,982.26 Year 2: $2,217.58 Year 3 onward: $2,464.67 | About $28,754 |
| $10,000 credit split between permanent discount points and closing costs | $2,278.29 at an assumed 6.00% rate | $27,600 if the points cost $7,600 |
*Cash figures equal down payment plus the assumed costs, less credit applied to those costs. They are before earnest money or costs already paid. Payments exclude property taxes, homeowners insurance, mortgage insurance and HOA dues. The lower-price example keeps 5% down, making the price $390,000 and loan $370,500. Other costs are held constant to isolate the comparison; actual costs and interest rates may differ.
A lower price saves about $62 a month in this example
The $10,000 price reduction lowers the amount borrowed by $9,500 because we are keeping the down payment at 5%. It also reduces the down payment by $500.
That is a real benefit. But if keeping cash available is your biggest concern, a usable $10,000 closing-cost credit has a much larger immediate effect.
A temporary buydown provides bigger early payment relief
In this 2-1 example, the subsidy reduces the buyer's principal-and-interest payment by about $482 a month in year one and $247 in year two. Funding it requires about $8,754, leaving about $1,246 of the $10,000 credit for other eligible costs.
The loan's note rate remains 6.75%. The subsidy covers the difference during the temporary period. See Fannie Mae's temporary buydown requirements.
I would want you comfortable with the payment after that assistance ends. If your income is likely to stay flat, those payment increases deserve a serious conversation. Fannie Mae also requires qualification at the note rate rather than the temporarily reduced payment.
You can use my temporary buydown calculator to compare the early payments and subsidy cost, then we can review the full housing payment together.
A permanent buydown may fit a longer-term plan
For comparison, assume a lender offers 6.00% for $7,600 in discount points. That would reduce principal and interest by about $186 a month and leave $2,400 of the credit for other eligible costs.
That point cost is hypothetical. A particular dollar amount does not always buy a particular interest rate reduction. We need an actual lender quote. The CFPB explains how discount points trade upfront cost for a lower interest rate.
If this may be your forever home, a permanent reduction deserves a look. I still want to compare how long you expect to keep this particular loan and how much cash you want left after closing.
When would I choose the lower purchase price?
If you are paying cash, mortgage buydowns are not part of the decision. If you are financing but have enough for your down payment, closing costs and a comfortable savings cushion, a lower price may be the better fit.
In our example, keeping the starting loan for all 360 payments would produce about $507,282 in interest. The lower-price loan would produce about $494,600, roughly $12,682 less interest, in addition to borrowing $9,500 less. That is interest alone, not every cost of owning the home.
The permanent buydown option also changes long-term interest, so we should compare it rather than assume the price cut always wins. The savings depend on the actual offer and how long you keep the loan.
The lowest payment, lowest cash at closing and lowest long-term cost may come from different options. I want you to understand the tradeoffs before choosing.
How much seller credit can you actually use?
There are two limits to check: what the loan program permits and how much you have in eligible expenses. The lender calls these interested party contributions, or IPCs.
For Fannie Mae conventional loans, the standard financing-concession limits are:
| Property and loan-to-value | Maximum |
|---|---|
| Primary residence or second home, above 90% | 3% |
| Primary residence or second home, 75.01% to 90% | 6% |
| Primary residence or second home, 75% or lower | 9% |
| Investment property | 2% |
The percentage uses the lower of the price or appraised value. Seller-funded buydowns count toward the limit. Credits cannot exceed eligible costs. See Fannie Mae's IPC rules.
For FHA purchase loans, interested parties can generally contribute up to 6% of the sales price toward eligible costs, including buydowns. This cannot supply the buyer's minimum required investment. See HUD Handbook 4000.1, Interested Party Contributions.
I check the actual program, property, down payment and lender requirements before recommending a credit amount.
What if you negotiate $10,000 but only need $7,500?
You generally cannot pocket the extra $2,500. We need to work out whether there is a useful, eligible way to apply it.
One option may be paying discount points. Another may be covering an eligible inspection expense you already paid, if the lender and settlement agent approve and document the reimbursement. Neither is something to assume before checking.
Or we can ask the seller to amend the price and credit together:
- Original terms: $400,000 price with a $10,000 credit.
- Proposed revision: $397,500 price with a $7,500 credit.
Either way, the seller gets the same amount before their other selling expenses. If they agree to the change, I’ll update your loan numbers so you can see exactly how it affects your payment and cash due at closing.
The goal is to use what you negotiated. Asking for a large credit that you cannot use does not help you.
Before your Realtor writes the offer, send me the address
That is where I start. Let me update the numbers with the property's tax information, a realistic insurance estimate, any HOA dues and the details of your loan. For new construction, we need to account for the completed home, not just the land's current tax bill.
If you are comparing estimates, read why a lower payment quote may use smaller tax and insurance estimates.
Then I like to get the buyer and Realtor on a call. In a competitive situation, we can check that a full-price offer fits the buyer's budget and approval. If there is room to negotiate, we can compare a lower price, seller credits and a combination.
If a builder is offering a credit for using their lender, send me that offer before you commit. Let’s compare their interest rate, fees and credit with the options I can offer you so you can see which deal actually puts you ahead.
Once the numbers are in front of us and we know your goals, the right direction usually becomes much clearer.
Common questions about seller credits and price reductions
Can seller credits pay my down payment?
A standard closing-cost credit does not replace your required down payment. It may preserve your savings by covering eligible expenses you otherwise would pay yourself.
Does a temporary buydown lower my interest rate permanently?
No. It subsidizes early payments. Review the full payment schedule, including taxes, insurance and other housing expenses, before choosing it.
Can I ask for both a lower price and closing-cost help?
Yes, you can propose both. Whether a seller accepts depends on the negotiation. We should check that the credit is usable and the resulting loan still fits.
Is a seller credit always better than a price reduction?
No. A credit can be especially useful when cash at closing is the priority. A lower price reduces the cost of the house and may better fit a buyer with sufficient savings. Compare the actual loan options and the period you expect to keep the loan.
Let's compare the offer before you commit
You do not need to figure all of this out on your own.
Send me the address, what you are thinking of offering and what matters most to you. I can work with you and your Realtor to compare the payment, cash at closing and longer-term cost.
Conversations are free. Schedule a conversation with me before you decide which concession to ask for.
