What is a credit on a closing statement?

A credit on a closing statement represents an amount entered in a person's favor, which may involve payments or reimbursements associated with the real estate transaction. This is significant because credits help to balance out debits on the closing statement, ensuring that all financial aspects of the transaction are accounted for. For instance, if a seller has prepaid property taxes, they may receive a credit for that amount since the buyer will benefit from those prepayments.

On a closing statement, credits effectively reduce the overall costs that a party has to pay at closing. For example, if the buyer is entitled to a seller concession or if there are repairs that the seller agreed to complete before closing, a credit will reflect these adjustments. Understanding the function of credits is essential for all parties involved in the transaction, as it contributes to a clear understanding of the financial obligations as they settle into ownership.