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More so in slow markets, or if there's a reason that the sellers want to move the house quickly, a seller may offer a "buyer's incentive" to purchase the house. This is often seen written into the listing similarly to:

  • $2000 flooring allowance to buyers on closing
  • $5000 paint incentive to buyer upon closing
  • $1000 cashback to buyers at closing

The reason for this is to recognize that there is something that needs repair or upgrade, or to provide an extra financial incentive to the buyer, but not necessarily do it in the form of reduction in purchase price. Wouldn't it be easier to list a house for $220,000 to reflect the condition, rather than listing it at $225,000 and offering $5000 incentive? It's essentially the same thing but in a round about way. Perhaps listing it at $225,000 but getting $5000 off makes it "feel" like the buyer got a deal.

How do mortgage lenders look at this type of incentive?

Most often, it's deducted from the purchase price and not given to you as cash in hand at closing.

If there is an issue on closing and there's a hold back of funds due to that issue or damage that can't be resolved quickly, there can be circumstance where you get cash in hand. But it's not the norm and is not a circumstance that is planned in the agreement.

There have been advertisements where seller will pay for legal fee, closing costs or down payment for the buyer. All of these scenarios are similar to the above and the mortgage lender is going to look at it as a reduction in purchase price. At the end of the day, the buyer needs to have their own resources to buy a home. Assessing suitability to be a homeowner also includes the means to pay for those expenses.

And, in the long run, the reduction in purchase price will save the most money have allow for the mortgage to be paid off faster, so it's a win-win all around.

Any questions, I'm always here for you! Feel free to reach out with questions big or small.

Sarah Nixon-Miller
Mortgage Broker
(902) 225-7077