Credit, price cut or repairs: three ways to settle an inspection
When an inspection turns up problems, sellers usually prefer to give money over arranging repairs. That money can come two ways, and they aren’t worth the same to you.
A price reduction
The price drops, so your loan is smaller. On a 30-year loan at 6.5%, every $10,000 off the price lowers the payment by about $57 a month with 10% down. But your cash at closing barely changes: you save only the down payment on that $10,000, or $1,000. You still need the full repair money in your own pocket after closing.
A credit at closing
The price stays the same and the seller pays some of your closing costs. That leaves the cash in your account to pay a contractor after you move in. The limits: a credit can’t be more than your actual closing costs and prepaid items, and lenders cap seller-paid costs by loan type (3% to 9% for conventional loans depending on your down payment, 6% for FHA and USDA, 4% for VA concessions).
Which to ask for
- Short on cash after closing? Ask for the credit. Repairs need cash, and a lower payment doesn’t fix a roof.
- Cash is fine? The price cut is worth more over time, because you never borrow that money or pay interest on it.
- Big repairs? Combine them: a credit up to your closing costs, and the rest off the price.
Whatever you ask for, back it with a contractor’s written estimate. See negotiating repairs after the inspection for how to make the request.
Questions buyers ask
Is it better to ask for a repair credit or a lower price?
A credit puts cash in your pocket at closing, which helps you pay for the repairs. A lower price saves a little each month and more over time. If cash will be tight after closing, the credit usually helps more.
Can a seller give me cash back for repairs?
Not as cash in hand. Lenders only allow seller credits toward your closing costs and prepaid items, up to a limit for your loan type. Anything above that has to come off the price or be handled as a repair.
Should I let the seller make the repairs?
It saves you cash and effort, but the seller picks the contractor and has little reason to pay for quality. If you agree to it, require licensed contractors and receipts, and check the work at your final walk-through.