Short answer: A 3% seller credit is money the seller agrees to pay at closing on the buyer's behalf, equal to 3% of the purchase price. On a $634,900 home, that's $19,047. You can usually put it toward closing costs, prepaid items, a permanent interest rate buydown, or a temporary buydown such as a 3-2-1, as long as you stay inside your loan program's limits.
What is a seller credit?
A seller credit (also called a seller concession) is part of your purchase contract. Instead of cutting the price, the seller agrees to cover some of your costs at closing. The money doesn't go to you as cash. It's applied on your closing statement to things like:
- 01 Lender fees, title and escrow charges
- 02 Prepaid items such as homeowner's insurance, property tax reserves and prepaid interest
- 03 Discount points to permanently lower your rate
- 04 Funding a temporary buydown account
If the credit is more than your allowable costs, the extra generally can't be handed to you. That's why it pays to plan with your lender before you write the offer.
A worked example: 425 E Woodland Dr
My listing at 425 E Woodland Dr in Flagstaff's Pine Knoll Village (3 bed, 3 bath, 1,990 sq ft, listed at $634,900) comes with a 3% seller credit:
$634,900 × 3% = $19,047
A buyer could use that $19,047 to cover most or all of their closing costs, buy down their rate permanently, or fund a 3-2-1 temporary buydown. They could also split it, for example part to a buydown and the rest to closing costs.
Permanent buydown vs. 3-2-1 temporary buydown
Permanent buydown: The credit pays for "discount points" that lower your interest rate for the life of the loan. One point usually costs 1% of the loan amount. How much each point lowers your rate depends on the lender and the market that day, so ask for a quote. This option makes the most sense if you plan to keep the home and the loan for a long time.
3-2-1 temporary buydown: Your rate is 3 percentage points lower in year one, 2 lower in year two, 1 lower in year three, and back to the full note rate in year four. The seller's money goes into an account that covers the difference in your payment. It's helpful if you want lower payments in the early years, or if you expect to refinance later.
Example only (assumed numbers, not a rate quote): Say you put 10% down on $634,900, so your loan is $571,410 on a 30-year fixed at an assumed 7.0% note rate. Principal and interest only:
| Year | Rate | Monthly P&I | Savings vs. 7.0% (per year) |
|---|---|---|---|
| 1 | 4.0% | ~$2,728 | ~$12,883 |
| 2 | 5.0% | ~$3,067 | ~$8,810 |
| 3 | 6.0% | ~$3,426 | ~$4,509 |
| 4–30 | 7.0% | ~$3,802 | — |
In this example, a full 3-2-1 would cost about $26,200, which is more than the $19,047 credit. So the buyer might choose a 2-1 buydown instead (about $13,319) and put the remaining ~$5,700 toward closing costs. Or they could cover the rest of a 3-2-1 themselves. Your real numbers will depend on your rate, loan amount and lender, and that's exactly why we run them before you write the offer.
Lender limits on seller concessions
Every loan type caps how much a seller can contribute, and the cap often depends on your down payment:
- 01 Conventional loans: The cap goes up as your down payment goes up. Buyers with smaller down payments get the lowest cap.
- 02 FHA loans: There's a set maximum percentage of the price.
- 03 VA loans: There's a cap on concessions, but some standard closing costs may not count toward it.
- 04 USDA loans: They have their own percentage limit.
Rules change, and some lenders add their own limits. Confirm the current cap with your lender so none of the credit goes unused.
Tips for negotiating a seller credit in Flagstaff
- 01 Price and credit work together. A seller may prefer giving a credit to dropping the price. Compare what each does to your monthly payment and your cash to close.
- 02 Get a lender estimate first. Know your closing costs and buydown pricing so you can ask for the right amount.
- 03 Watch the appraisal. The home still has to appraise at the contract price.
- 04 Look at days on market. Homes that have been listed for a while, or that already advertise a credit, are often open to these terms.
- 05 Plan for Flagstaff costs. Insurance, HOA dues and tax reserves are part of your prepaids, and a credit can help cover them.
FAQ
Can I get a seller credit as cash back?
No. A seller credit can only pay for allowable closing costs, prepaids and buydowns. Any amount above those costs is usually lost or has to be renegotiated.
Is a 3-2-1 buydown better than a permanent buydown?
It depends on your plans. A 3-2-1 lowers your payments for the first three years. A permanent buydown lowers your rate for the life of the loan. Your lender can show you the break-even point for each.
Do all loan types allow a 3% seller credit?
Most do, but each has a cap. Some caps depend on your down payment, so check with your lender before you write your offer.
How much is a 3% credit on a $634,900 home?
$19,047.
Thinking about buying in Northern Arizona?
I'm happy to walk you through how a seller credit could work on 425 E Woodland Dr or any home you're considering. I'll connect you with a lender so you're working with real numbers.
Cassi McGinnis (Cassaundra Jo McGinnis), REALTOR®
JBRE & Co. at Real Broker AZ, LLC | AZ DRE #SA688027000
📞 (602) 694-0863
Serving Flagstaff, Sedona & North Phoenix
Example figures are for illustration only and are not a loan offer or rate quote. Talk with a licensed lender about your situation.