A $10,000 Seller Credit and a $10,000 Price Cut Are Not the Same Deal
Equal headline dollars land in different places. A credit lowers what you bring to closing; a price cut lowers the loan and the monthly payment. Here is how buyers can compare them.
By Anthony Brikho · 3 min read
Why this matters: With rates high, buyers are asking sellers for help. Choosing between a credit and a price cut changes your cash to close, your payment and sometimes whether the lender can use the money at all.
Cover: a balance scale comparing a closing credit with a lower price tag. Illustration created for mortgage.news; it does not depict a real person, property or document.
Where each dollar goes
A price cut lowers the contract price. On a loan with a percentage down payment, it lowers both the down payment and the loan amount, which trims the monthly payment for the life of the loan.
A seller concession, or seller credit, leaves the price alone. The seller pays some of the buyer's closing costs instead. The Closing Disclosure shows it as a seller credit that reduces the cash the buyer brings.
A simple illustration
Interpretation, using round hypothetical numbers: on a $400,000 purchase with 10% down, a $10,000 price cut reduces the down payment by $1,000 and the loan by $9,000. At a 7% rate on a 30-year loan, that is roughly $60 less per month in principal and interest. A $10,000 credit instead cuts cash due at closing by up to $10,000, but the payment stays the same.
Neither is automatically better. A buyer short on closing cash may value the credit. A buyer with enough cash who plans to keep the loan for many years may value the lower balance.
Program limits can cap a credit
Loan programs limit how much a seller or other interested party can contribute. Fannie Mae's interested party contribution rules set limits that vary with down payment and occupancy. FHA and VA have their own limits. A credit generally cannot exceed actual allowable costs, and unused credit usually does not become cash back. Ask your lender which limit applies to your file before you sign.
Compare on the Loan Estimate
Ask your lender for two updated Loan Estimates, or written worksheets, one for each option. Compare the "Estimated Cash to Close" and the "Estimated Total Monthly Payment" lines.
The CFPB comparison guide points to the cash-to-close figure on page 2 and lender credits in Section J. Keep the rate, points and lock period the same in both versions so the only difference is the seller's money.
Questions to ask
- Which contribution limit applies to my loan type and down payment?
- Can any part of the credit go toward discount points, and is that worth it for how long I expect to keep the loan?
- Does a lower price change my mortgage insurance or appraisal picture?
- How many months until a price cut's payment savings equal the credit's upfront value?
The takeaway
Write the request in the form that solves your actual problem: cash today or payment over time. Get the lender's numbers on both before you negotiate.