Closing Cost Credit
Where a closing cost credit comes from
A closing cost credit can come from a seller (a seller concession) or from a buyer's own agent when the seller-offered buyer-agent compensation exceeds that agent's fee. Either way, the credit is applied directly on the settlement statement at closing, reducing the buyer's out-of-pocket cash needed to close -- it does not change the recorded purchase price of the home.
Credit vs. price reduction
A closing cost credit and a price reduction aren't equivalent, even when the dollar amounts look similar. A credit doesn't affect the seller's net proceeds calculation the same way a price cut does, and because it doesn't change the recorded sale price, it doesn't affect the buyer's property tax basis under Prop 13 the way a lower purchase price would. See the full breakdown on the rebate vs. lower price comparison.
What a credit typically offsets
Closing costs in California commonly run 1.5% to 2% of the purchase price -- on a $900,000 home, that's roughly $13,500 to $18,000 in loan fees, title insurance, escrow fees, and prepaid items. A closing cost credit from a flat fee arrangement can offset some or all of that, directly reducing the cash a buyer brings to the closing table.
- Ask your lender for the maximum credit allowed under your loan program
- Estimate your total closing costs early so you know what the credit offsets
- Confirm the credit appears correctly on your closing disclosure before signing
- Don't assume any leftover credit becomes cash back — it generally doesn't