Why That Seller Credit Might Not Help as Much as You Think

When Jessica saw that $10,000 seller credit on her dream home, she thought she’d hit the jackpot. The plan? Use it toward closing costs and keep her savings untouched. But a few days before closing, she learned what many buyers discover too late — credits don’t always work the way you expect.

The catch no one explains

Most lenders cap how much credit a buyer can actually use based on the loan type and total closing costs. If your costs are lower than the credit offered, you don’t automatically pocket the difference — the unused portion simply disappears. In Jessica’s case, her lender could only apply $7,400 of the $10,000 credit. That extra $2,600? Gone.

Why it happens

Lenders restrict credits to protect loan-to-value ratios and prevent inflated sales prices. Credits can only cover legitimate buyer expenses — things like prepaid taxes, insurance, or lender fees — not down payments or leftover cash. If your loan program, rate-buy-down, or appraisal leaves no room for the full credit, it simply can’t be used.

How to make credits work for you

• Talk with your lender before offering or accepting a credit — know the limits by loan type.
• Adjust the offer price or credit amount to match allowable costs.
• Explore interest-rate buy-downs or repairs instead if the credit’s too large to apply.

Bottom line

Seller credits can be a great negotiating tool — just not a guaranteed discount. Always coordinate with your lender and agent before finalizing numbers. A little clarity early can save frustration later.