Most purchase contracts include an inspection contingency. Sometimes, the buyers remove this contingency without asking the seller to make any repairs. But if the buyers ask the seller to remedy a defect, the resolution often takes the form of a credit from the seller to the buyer that is applied toward the buyers’ nonrecurring closing costs.

Closing costs are the miscellaneous fees that buyers pay at closing, such as title insurance, transfer taxes and loan origination fees, to name a few. Nonrecurring closing costs are those fees paid at closing that are paid on a one-time-only basis, such as title insurance and points. Recurring closing costs are paid on an on-going basis, like homeowner’s insurance and mortgage interest.

You may wonder why the credit is for the buyer’s nonrecurring closing costs rather than for repairs. One reason is that if you mention repairs in an addendum to the purchase contract, the buyer’s mortgage lender could require that you get the work done by closing. This could be difficult or impossible depending on the type of work and on the amount of time you have to get it done.

Lenders limit the amount a seller can credit to ensure that a credit to the buyer doesn’t reduce the amount of the buyer’s cash down payment. From the lender’s standpoint, the security of a loan is in part determined by the amount of cash the buyer is investing. The more the buyer has invested in a property, the less likely he is to default on the mortgage. A credit for the buyer’s nonrecurring closing costs does not change the amount of the buyer’s cash down payment.