how to write seller credit into the contract | Military Home Loans

how to write seller credit into the contract

You’ve asked 5 separate agents how to request seller credit, and gotten 5 completely different answers.

Screw this up, and it’ll cost your buyer. 

Here’s our simple solution to get the most for your buyer...

The MHL formula for Writing Seller Credit into the Contract*:

“Request seller to credit buyer up to $X,XXX for recurring and non-recurring closings costs to include VA non-allowed fees, prorations, and debts.”

Why this way?

  • “Seller to Credit Buyer”
    • That says who the money is going from and to. Simple.
    • In the case of a short sale, it’s assumed the seller is actually the short selling bank, but you can add that if you’d like to be more clear. 
       
  • “Up to $X,XXX”
    • Set a limit. Don’t ask for a blank check. The listing agent needs to protect their seller from exactly that, so they’re going to insist on a cap.  You might as well set the tone for how much you want. 
    • Use actual dollar amounts ($), not percentages (%). It’s easier for the seller to figure out how much they’ll really make when you request $5,000 credit on a $250,000 purchase, versus asking for 2% credit.
       
  • "For Recurring and Non-recurring Closing Costs"
    • If you only asked for the credit to cover VA non-allowed fees, then that’s all it can be used for. This method says you can use the money for essentially any closing costs.
       
  • "To Include VA Non-allowed Fees"
    • This part is actually not necessary, as the previous phrase already covers VA non-allowed and VA allowed fees. But it makes it clear that issue is taken care of for those agents that are looking for that issue.
       
  • "Prorations"
    • Some have argued that prorated taxes are not a closing cost. Sure they get charged to the buyer, but in a different place than all the other closing costs.  We find that argument annoying, so this cuts it off before it starts. 
       
  • "And Debts"
    • In rare circumstances, you can use seller credit to pay off a buyer’s credit card or car loan. DO NOT plan this into the deal, as the VA doesn’t want buyers making money out of a deal. But if all the costs were covered and there was $500 of leftover seller credit, wouldn’t it be awesome to pay off that $500 credit card and get the house? 

Where does that language go?

It is what it is, so don’t hide it. Make it clear and simple to find.

  1. Somewhere obvious, on page 1 of the contract. In CA, we recommend putting it verbatim in paragragh 3.E (additional financing terms).
  2. We put in on our pre-approval letter.
  3. Include it in your agent cover letter.
  4. If you’re using the ‘FHA or VA Notice and Addendum’ (C A optional form), then put it in paragraph 1.A. as well.
  5. Do NOT put it in the client’s letter to the seller. That’s not a place to talk numbers.

 

   *We're not your brokers, real estate agents, lawyers, or risk mitigation specilists.  We just do a lot of VA loans and have seen what works.  Please review our recommendations with your own agent, broker, legal counsel, and other support to ensure it meets local, state, federal, and common sense requirements. 

 


Did this answer your question? If yes, please share!  If not, call us and a human will help you. 619.422.5900


Information accurate as of publication date; the views, articles, postings and other information listed in this section are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation. The material in this section is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is without errors.

POST A COMMENT

Comments

Very informative, thank you.