Seller concessions are negotiated credits from the seller that help pay eligible buyer costs at closing.
Instead of lowering the purchase price, a seller might agree to contribute money toward closing costs, prepaid taxes and insurance, discount points or another expense allowed by your mortgage program.
Seller concessions can reduce your cash to close, but there are limits on how much the seller can contribute and what the credit can cover.
Seller Concessions Basics
| Seller Concession Basics |
What to Know |
| What They Are |
Credits a seller agrees to provide toward eligible buyer costs |
| How They Help |
They can reduce the amount of cash you need at closing |
| Maximum Amount |
Depends on the mortgage program, property use and financing structure |
| Down Payment |
Seller concessions generally cannot replace a required borrower down payment |
| Unused Credit |
You generally cannot receive unused seller concessions as cash |
What Are Seller Concessions?
A seller concession is an amount the seller agrees to pay toward expenses that would otherwise be the buyer's responsibility.
You may also hear the phrase “seller credit.” In everyday homebuying conversations, seller credit and seller concession are often used to describe the same basic idea. Mortgage guidelines may use more specific terms depending on the type of contribution.
For example, suppose you are buying a $400,000 home and expect $12,000 in eligible closing costs and prepaid expenses. If the seller agrees to a $10,000 credit, that contribution could reduce the portion of those costs you pay yourself from $12,000 to $2,000, assuming the full credit is allowed under your loan program.
The seller is not handing you $10,000 after closing. The credit is applied to eligible costs within the transaction.
Seller Concessions by Loan Type
| Loan Type |
Maximum Seller Concession |
What Buyers Should Know |
| Conventional |
Generally 3%, 6% or 9% for eligible primary residences and second homes, depending on LTV. Generally 2% for investment properties. |
Fannie Mae and Freddie Mac use tiered financing-concession limits. |
| FHA |
Up to 6% of the sales price |
Can cover eligible closing costs and other allowed expenses but not the FHA minimum required investment. |
| VA |
Up to 4% for items VA specifically defines as seller concessions |
Ordinary seller-paid closing costs and reasonable discount points are generally separate from the 4% cap. |
| USDA |
Up to 6% of the sales price |
The contribution must be used for an eligible loan purpose. |
| Jumbo or Portfolio |
Varies |
The lender or investor determines the applicable contribution rules. |
These percentages are maximum program limits, not automatic credits. Your actual usable seller concession can also be limited by the amount of eligible costs you have.
How Seller Concessions Work
Seller concessions are normally negotiated in the purchase contract and applied at closing.
Suppose you are buying a $400,000 home with a 10% down payment.
| Purchase Example |
Without Seller Credit |
With $10,000 Seller Credit |
| Down Payment |
$40,000 |
$40,000 |
| Eligible Closing Costs and Prepaids |
$12,000 |
$12,000 |
| Seller Credit |
$0 |
−$10,000 |
| Estimated Buyer Cash Before Other Adjustments |
$52,000 |
$42,000 |
This example leaves out earnest money, lender credits, prorations and other transaction-specific adjustments.
The key point is that the seller concession reduces eligible costs. It does not automatically reduce the purchase price or mortgage balance.
Max Seller Concessions on a Conventional Loan
Conventional seller concession limits depend primarily on property occupancy and the loan-to-value ratios used by Fannie Mae or Freddie Mac.
For standard eligible primary residences and second homes, both agencies currently use the same basic financing-concession tiers:
| Financing Level |
Approximate Down Payment Equivalent |
Maximum Financing Concession |
| Above 90% LTV |
Less than 10% down |
3% |
| Above 75% through 90% LTV |
About 10% to less than 25% down |
6% |
| 75% LTV or below |
About 25% down or more |
9% |
| Investment Property |
Varies |
2% |
The down-payment equivalents are a simplified way to understand the tiers. Fannie Mae and Freddie Mac actually apply the limits using loan-to-value and combined financing ratios, so a second mortgage or other financing can affect which tier applies.
Fannie Mae and Freddie Mac Seller Concession Limits
Fannie Mae calls seller-paid closing assistance an interested party contribution. Its maximum financing concessions are 3%, 6% or 9% for eligible principal residences and second homes based on LTV or CLTV, with a 2% limit for investment properties.
Freddie Mac uses the same standard percentage tiers for financing concessions, although its guide uses its own LTV and total-LTV terminology.
Both agencies distinguish ordinary allowable financing concessions from excessive contributions or other benefits that may be treated as sales concessions.
How Down Payment Changes the Conventional Limit
A larger down payment can move you into a higher conventional seller-concession tier.
For example, on a straightforward purchase without subordinate financing:
- 5% down generally corresponds to the 3% tier.
- 10% down generally corresponds to the 6% tier.
- 20% down still generally corresponds to the 6% tier.
- 25% down generally corresponds to the 9% tier.
The specific loan structure still controls. If you have additional financing, the lender may need to use a combined ratio that produces a different result.
The conventional loan closing cost rules explain how these credits fit into the rest of the transaction.
Conventional Investment Property Seller Concessions
Fannie Mae and Freddie Mac generally cap financing concessions on investment properties at 2%, regardless of the standard LTV tiers shown for primary residences and second homes.
That lower cap can make cash-to-close planning especially important when buying a rental property.
FHA Seller Concessions
FHA loans generally permit sellers and certain other transaction participants to contribute up to 6% of the sales price toward eligible borrower costs.
HUD formally calls these interested party contributions. For a buyer, the concept is simpler: the seller and certain other parties involved in the sale can help pay eligible costs, subject to FHA limits.
FHA seller concessions can cover eligible origination fees, other closing costs, prepaid items, discount points and certain rate buydowns.
They cannot be used to satisfy the borrower's FHA minimum required investment.
The dedicated FHA seller concession limits explain the 6% sales-price cap and what happens when a contribution exceeds eligible costs.
VA Seller Concessions
VA seller concessions work differently from FHA and conventional concessions.
The Department of Veterans Affairs limits the items it specifically defines as seller concessions to 4% of the home's reasonable value.
However, VA does not apply that 4% cap to ordinary seller-paid closing costs in the same way.
VA says sellers or builders can pay some or all of a buyer's closing costs. Normal discount points and payment of buyer closing costs are generally excluded when determining whether VA-defined seller concessions exceed 4%.
The VA loan closing cost rules explain which expenses fall into each category.
USDA Seller Concessions
USDA guaranteed loans generally limit seller and other interested-party contributions to 6% of the sales price.
USDA Rural Development says the contribution must represent an eligible loan purpose. Seller contributions can be used for eligible closing costs and prepaid items, but they cannot simply be used to pay off buyer debt to qualify for the mortgage.
USDA loans can provide 100% financing for eligible borrowers and properties, so the rules around USDA down payments are separate from the seller-concession limit.
Jumbo and Portfolio Loan Seller Concessions
Jumbo and portfolio mortgages do not necessarily follow Fannie Mae, Freddie Mac, FHA, VA or USDA limits.
The lender or investor sets the applicable rules. If you are using a jumbo or portfolio mortgage, confirm the maximum contribution and eligible uses before making the seller credit part of your offer.
What Seller Concessions Can and Cannot Cover
Seller concessions commonly help cover expenses you would otherwise have to pay at or before closing.
Depending on the mortgage program, eligible expenses can include:
- Lender and origination charges
- Appraisal fees
- Title and settlement charges
- Prepaid property taxes
- Homeowners insurance premiums
- Discount points
- Eligible permanent or temporary rate buydowns
- Other program-approved closing expenses
Seller concessions generally cannot simply be converted into cash for the buyer.
They also generally cannot replace a required borrower down payment. FHA explicitly prohibits seller contributions from satisfying the minimum required investment, while Fannie Mae and Freddie Mac do not allow financing concessions to fund the borrower's down payment or minimum borrower contribution.
Seller-funded temporary 2-1 and 3-2-1 buydowns may also be possible when permitted by the loan program and included within applicable contribution limits.
How to Negotiate Seller Concessions
Use Credits Instead of Asking Only for a Price Cut
A seller credit can have a much larger immediate effect on your cash to close than the same dollar amount taken off the purchase price.
If upfront cash is the main constraint, compare both options before deciding which one to request.
Target the Costs That Matter Most
Estimate your closing costs before negotiating the credit.
If your eligible costs total $8,000, negotiating a $15,000 seller credit may not provide $15,000 of usable benefit even when the loan program's percentage limit would allow that amount.
Use Credits Carefully After Inspection Negotiations
After an inspection, a buyer and seller may sometimes negotiate a seller credit instead of having the seller complete a non-required repair before closing.
The credit still has to be used in a way your mortgage program and lender permit. A seller concession generally is not a cash repair allowance handed directly to you after closing.
Confirm Program Rules Before Writing the Offer
Seller concession rules differ enough by loan type that the financing should be checked before the contract is finalized.
The lender can determine the applicable maximum, which expenses can be covered and whether a proposed buydown or other seller-paid cost counts toward the limit.
Seller Concessions vs. a Price Reduction
A seller concession and a price reduction solve different affordability problems.
Consider an illustrative $400,000 purchase with 10% down, $12,000 in closing costs and a hypothetical 7.25% 30-year fixed mortgage rate.
| Scenario |
$10,000 Seller Concession |
$10,000 Price Reduction |
| Purchase Price |
$400,000 |
$390,000 |
| 10% Down Payment |
$40,000 |
$39,000 |
| Loan Amount |
$360,000 |
$351,000 |
| Closing Costs Before Credit |
$12,000 |
$12,000 |
| Seller Credit |
−$10,000 |
$0 |
| Estimated Cash Before Other Adjustments |
$42,000 |
$51,000 |
| Illustrative Principal and Interest |
About $2,456/mo |
About $2,394/mo |
The seller concession saves much more cash upfront in this example. The price reduction produces the lower mortgage balance and lowers principal and interest by about $62 per month.
This is an illustration only. Actual mortgage rates, closing costs, taxes, insurance and transaction adjustments vary.
Bottom Line
Seller concessions are negotiated seller-paid credits that can reduce the cash you need for eligible closing costs and prepaid expenses.
The maximum depends on the loan. Conventional limits generally range from 3% to 9% for eligible primary residences and second homes, with a 2% investment-property limit. FHA and USDA generally allow up to 6% under their respective rules. VA uses a separate 4% limit for the items it defines as seller concessions.
The percentage limit is only part of the calculation. Your actual eligible costs, financing structure and purchase contract determine how much of a seller credit you can use.
Frequently Asked Questions
What Are Seller Concessions in Real Estate?
Seller concessions are amounts the seller agrees to contribute toward eligible costs that would otherwise be paid by the buyer. They can reduce your cash needed at closing without necessarily lowering the purchase price.
What Is the Max Seller Concession on a Conventional Loan?
For eligible primary residences and second homes, Fannie Mae and Freddie Mac generally permit financing concessions of up to 3% above 90% LTV, 6% above 75% through 90% LTV and 9% at 75% LTV or below. Investment properties are generally limited to 2%.
What Is the Difference Between Seller Concessions and a Seller Credit?
The terms are often used interchangeably by buyers, sellers and real estate agents. Mortgage guidelines may use more specific terms such as financing concession or interested party contribution depending on who provides the money and how it is used.
Can Seller Concessions Be Used for the Down Payment?
Generally, seller concessions cannot simply replace a required borrower down payment. FHA prohibits seller contributions from funding the minimum required investment, and conventional financing concessions cannot be used for the down payment or minimum borrower contribution.
What Is the FHA Seller Concession Limit?
FHA generally allows interested parties to contribute up to 6% of the sales price toward eligible borrower costs. The contribution also cannot exceed the eligible costs it is being used to pay.
What Is the VA Seller Concession Limit?
VA generally caps the expenses it defines as seller concessions at 4% of reasonable value. Ordinary seller-paid closing costs and reasonable discount points are generally treated separately from that 4% limit.
What Is the USDA Seller Concession Limit?
USDA Rural Development generally limits seller and other interested-party contributions to 6% of the sales price. The contribution must be used for an eligible loan purpose.
What Can Seller Concessions Pay For?
Depending on the mortgage program, seller concessions can help cover lender fees, appraisal and title charges, prepaid taxes and insurance, discount points, eligible rate buydowns and other allowable closing expenses.
Can Seller Concessions Exceed Closing Costs?
The mortgage program may permit a percentage that is higher than your actual closing costs, but that does not necessarily mean you can use the full percentage. Excess contributions can be restricted, lost or require the transaction to be restructured.
Can a Buyer Get Cash Back From Seller Concessions?
Generally no. Seller concessions are intended to pay eligible transaction costs rather than provide unrestricted cash to the buyer.
Are Seller Concessions the Same as a Price Reduction?
No. A seller concession helps pay eligible buyer costs while keeping the agreed price intact. A price reduction lowers the purchase price and mortgage balance. A concession generally has a larger immediate effect on cash to close, while a price reduction generally has a larger effect on the loan balance and monthly principal-and-interest payment.
Do Seller Concessions Affect the Appraisal?
Seller concessions do not automatically reduce a property's appraised value. The appraiser and lender can consider concessions when evaluating the transaction, and excessive concessions can affect underwriting under the applicable loan program. A low appraisal can also require the purchase terms or financing to be reworked.
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