Lenders are informed of buyer rebates to comply with federal law.
Lenders do not allow for money to be given to the buyer after the closing. Imagine: You are lending $80 dollars to the buyer with a $20 dollar down payment to buy a $100 home. How would you feel when you see $2 dollar given to them after the closing? Which means the $18 from the buyer is not meeting the 20% down payment requirement that the lender in this scenario executed into the mortgage agreement.
It is accepted that the commission rebate is spent on the closing cost and prepaids (Property Taxes, Homeowner’s Insurance, and Mortgage Interest). These are typically calculated as out-of-pocket cost in addition to the down payment.
Often times, a buyer rebate will exceed the total closing cost and prepaids. The excess remainder rebate amount is then applied towards reducing the total home sale price.