Seller concessions are negotiated credits from the seller that help cover some of the buyer’s closing costs. Instead of lowering the purchase price, the seller agrees to pay certain eligible expenses at closing so the buyer brings less cash to the transaction.
Seller concessions can be useful when upfront costs are a barrier. They may help you preserve cash for moving expenses, repairs, furniture or emergency savings. The limits depend on your loan type, the property, your down payment and the costs you are allowed to apply the credit toward.
Seller concessions need to be structured carefully. If the credit is too large, used for an ineligible cost or written unclearly in the contract, the lender may require changes before closing.
| Seller Concession Basics |
What To Know |
| What they are |
Credits the seller agrees to pay toward the buyer’s allowable closing costs or prepaid expenses. |
| How they help buyers |
They can reduce cash needed at closing. |
| How they help sellers |
They may help keep the purchase price intact while addressing the buyer’s closing-cost concerns. |
| Main limit |
They must stay within loan-program limits and usually cannot exceed actual allowable buyer costs. |
| Cash back |
Seller concessions generally cannot be turned into direct cash back for the buyer. |
Seller Concessions By Loan Type
| Loan Type |
Typical Maximum Seller Concession |
Key Notes |
| FHA |
Up to 6% of the sales price. |
Can cover allowable closing costs, prepaid items, discount points and certain other approved costs. |
| VA |
Up to 4% for VA-defined seller concessions. |
Normal closing costs and reasonable discount points are generally treated separately from the 4% cap. |
| USDA |
Up to 6% of the sales price. |
Credits still must be used for allowable costs and cannot create excess cash back. |
| Conventional |
Typically 3% to 9%, depending on down payment, occupancy and property type. |
Investment properties are often capped at 2%. |
| Jumbo or portfolio |
Lender-specific. |
Rules vary by lender, investor and loan program. |
How Seller Concessions Work
Seller concessions are seller-paid credits that reduce the buyer’s cash needed at closing.
These credits are usually negotiated as part of the purchase contract and applied to eligible closing costs rather than given directly to the buyer as cash.
Common eligible costs may include:
- Loan origination fees.
- Underwriting fees.
- Appraisal charges.
- Title insurance and settlement fees.
- Prepaid property taxes.
- Homeowners insurance premiums.
- Discount points.
- Temporary rate buydowns, when allowed.
- Certain home warranties, depending on loan program and lender rules.
For buyers, concessions can reduce out-of-pocket costs. For sellers, concessions can help address a buyer’s cash-to-close needs without lowering the contract price.
FHA Seller Concessions
FHA loans generally allow seller and other interested party contributions up to 6% of the sales price. These credits can be used for allowable borrower costs such as origination fees, other closing costs, prepaid items, discount points, certain buydowns and upfront mortgage insurance premium. Contributions above actual allowable costs or above the 6% limit can reduce the value used to calculate the loan amount
FHA seller concessions cannot be used for the borrower’s minimum required investment. In most FHA purchase transactions, that means you still need your own acceptable funds or eligible gift funds for the required down payment.
VA Seller Concessions
VA loan rules treat seller concessions differently than many other loan programs. VA-defined seller concessions are generally capped at 4% of the reasonable value of the property. Normal seller-paid closing costs and reasonable discount points are generally separate from that 4% concession cap.
VA-defined seller concessions may include items such as paying the VA funding fee, paying off certain buyer debts, providing gifts or incentives, or funding a temporary rate buydown.
Because VA rules separate normal closing costs from seller concessions, the contract language should be clear about what the seller is paying and how the credit will be applied.
USDA Seller Concessions
USDA loan seller concessions are generally limited to 6% of the sales price. USDA program materials state that seller contributions are limited to 6% of the sales price.
USDA seller credits still need to be used for allowable costs. They generally cannot exceed the buyer’s actual eligible closing costs and cannot be used to create excess cash back at closing.
Conventional Seller Concessions
Conventional loan seller concession limits depend on occupancy, loan-to-value ratio and property type. Fannie Mae and Freddie Mac both limit interested party contributions, which can include seller-paid closing costs and other credits. Interested party contributions cannot be used for the down payment, reserves or minimum borrower contribution requirements.
For many conventional loans, the limits are:
- Up to 3% for a primary residence or second home when the down payment is less than 10%.
- Up to 6% for a primary residence or second home when the down payment is 10% to 25%.
- Up to 9% for a primary residence or second home when the down payment is more than 25%.
- Up to 2% for investment properties.
Exact limits depend on the specific loan structure and investor rules, so confirm the maximum with your lender before writing the offer.
Jumbo And Portfolio Loan Seller Concessions
Jumbo and portfolio loans do not always follow the same concession caps as standard conventional, FHA, VA or USDA loans. The lender or investor sets the rules.
If you are using a jumbo or portfolio loan, confirm the maximum concession amount, eligible costs and contract wording before negotiating the credit.
What Seller Concessions Can And Cannot Cover
Seller concessions can usually cover allowable buyer closing costs and prepaid items. They can also sometimes fund discount points or temporary rate buydowns, depending on the loan program and lender approval.
Seller concessions generally cannot:
- Exceed program limits.
- Exceed the buyer’s actual allowable closing costs.
- Be turned into direct cash back for the buyer.
- Cover the borrower’s required down payment when the loan program does not allow it.
- Be used in a way that conflicts with the purchase contract or lender requirements.
If the credit is larger than the buyer’s eligible costs, the unused portion is usually lost unless the contract can be restructured before closing.
How To Use Seller Concessions
Use Credits Instead Of Asking Only For A Price Cut
In some situations, a seller credit can be more useful to a buyer than a modest price reduction. A lower price may reduce the monthly payment only slightly, while a seller concession can reduce the cash needed at closing.
Target The Costs That Matter Most
Concession requests often focus on high-impact items such as lender fees, prepaid taxes and insurance, title and escrow costs, discount points and temporary rate buydowns.
Use Concessions After Inspection Negotiations
Seller credits are sometimes used after the inspection period. Instead of asking the seller to complete repairs, a buyer may request a credit and handle the work after closing. The lender still has to approve the credit and the use of funds.
Confirm Program Rules Before Writing The Offer
Not every credit structure works under every loan type. Confirm with the lender how much is allowed and what expenses the credit can cover before finalizing contract language.
How To Negotiate Seller Concessions
A practical approach is:
- Identify your loan program.
- Confirm the seller concession cap with your lender.
- Estimate your total allowable closing costs and prepaid expenses.
- Decide whether a credit or a price reduction helps more.
- Write clear contract language stating the amount and permitted uses.
- Make sure the structure still works if the appraisal comes in low.
- Confirm the final credit on the Loan Estimate and Closing Disclosure.
Well-structured concessions can help the transaction move more smoothly. Poorly structured concessions can delay closing or require last-minute changes.
Seller Concessions vs. Price Reduction
A seller concession and a price reduction affect the transaction differently.
A price reduction lowers the purchase price. That may slightly lower the monthly payment and loan amount. A seller concession keeps the price the same but applies a seller-paid credit toward eligible buyer costs.
| Option |
How It Helps |
Main Limitation |
| Seller concession |
Can reduce cash needed at closing. |
Must stay within program limits and actual allowable costs. |
| Price reduction |
Can reduce the loan amount and monthly payment. |
May not reduce upfront cash needs as much as a credit. |
The better option depends on your cash to close, monthly payment target, appraisal risk and loan program rules.
The Bottom Line
Seller concessions are negotiated seller-paid credits that can reduce a buyer’s cash needed at closing. They can be used for eligible closing costs, prepaid expenses and some loan-related costs, depending on the loan program.
The limits vary by loan type. FHA and USDA commonly allow up to 6% of the sales price. VA applies a 4% cap to certain seller concessions, while normal closing costs are generally treated separately. Conventional limits usually range from 3% to 9% for primary residences and second homes, with many investment properties capped at 2%.
Before writing an offer, confirm the maximum credit, eligible costs and contract language with your lender.
Frequently Asked Questions
What Are Seller Concessions In Real Estate?
Seller concessions are credits the seller agrees to pay at closing to cover some of the buyer’s allowable closing costs or prepaid expenses.
What Can Seller Concessions Pay For?
Seller concessions can often pay for loan fees, title charges, appraisal costs, prepaid taxes and insurance, discount points and some other eligible closing expenses. Exact rules depend on the loan program and lender.
What Are The Seller Concession Limits By Loan Type?
FHA generally allows up to 6% of the sales price. USDA generally allows up to 6% of the sales price. VA generally allows up to 4% for certain concession items, while normal closing costs and reasonable discount points are treated separately. Conventional limits usually range from 3% to 9% depending on down payment and occupancy, with investment properties often capped at 2%.
Can Seller Concessions Exceed Closing Costs?
Generally no. Seller concessions usually cannot exceed the buyer’s actual allowable closing costs and prepaid expenses. If the credit is too large, the unused portion may be lost or the contract may need to be restructured.
Can A Buyer Get Cash Back From Seller Concessions?
Usually no. Seller concessions are generally limited to allowable closing costs and prepaid items, not direct cash back to the buyer.
Are Seller Concessions The Same As A Price Reduction?
No. A seller concession helps cover eligible buyer costs at closing. A price reduction lowers the purchase price. A concession may help more with cash to close, while a price reduction may help more with the loan amount and monthly payment.
Do Seller Concessions Affect The Appraisal?
They can. If the appraised value is lower than expected or the concessions appear excessive, the lender may require changes to the loan structure or contract before closing.
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