This and many other offerings are frequently added to listings in the MLS. From a marketing standpoint, it’s a perk designed to keep you interested at the same price even if something needs to be brought up to date.
Let’s say I wanted to sell a home for $500,000 knowing that the flooring is outdated and needs to be replaced. So, I get a bid on what it would cost to bring that floor up to date and I offer the seller less than that amount in hopes of showing them that I’m willing to “credit” them the cost of the flooring, we’ll call it $30,000, at closing, effectively making the price of the home $470,000.
If the buyer is putting 20% down ($100,000) then the amount of the loan will be $400,000 plus closing costs. The assumption with a “credit at closing” is that there will be cash from the lender that will go to the buyer to cover the cost of any improvements (such as new flooring.) Again, this is not allowed because essentially what you’re suggesting is that the lender convert part of the proceeds they’re providing at closing to an unsecured loan for a cosmetic repair, i.e. cash back.
Even if this was allowed, it doesn’t make sense to juggle numbers around like this. If I sell the house at 500,000, as the seller, I’m going to be paying a commission based upon this value. If the flooring is going to cost $30,000 to replace, then this should be reflected in the final contract price. If the seller is willing to give $30,000 at closing for something, just lower the price, and consider what the seller can contribute.
The seller IS allowed to contribute towards prepaids and closing costs to close the deal, but there are limits. If the loan is conventional, the maximum amount allowed is 3% of the sales price if the buyer is putting down less than 10%. If they are putting more than 10% down, the seller can go as high as 6% of the sales price. For investment properties, it’s capped at 2%. FHA loans also allow 6% and VA loans are stuck at 4%.
If the seller’s contribution exceeds the amount allowed, the buyer can roll the balance to pay down points on the loan to stretch it as far as possible, but anything left over simply becomes seller proceeds (i.e. money that belongs to the seller at closing.)
If the buyer and seller come to some sort of money agreement outside of the real-estate transaction, then it’s 100% on them to hash out the agreement, but it cannot be a part of the actual closing, and all parties involved in the closing can have no hand it that agreement. This is similar to when a buyer purchases additional property from the seller, such as furniture or appliances that are not included in the sale of the home, etc.
Current national average for a 30 year fixed mortgage sits at 7.16%.