What Is a Seller Concession? How Seller Credits Work

A seller concession is an agreement in which the home seller pays certain costs that would otherwise be the buyer’s responsibility.

That can reduce the amount of cash a buyer needs at closing. For sellers, agreeing to  to a concession can be part of negotiating an offer without necessarily lowering the home’s purchase price.

But how much a seller can contribute and what the money can pay for depends on the buyer’s mortgage program, property and transaction.

Key Takeaways

1. Seller concessions can reduce a buyer’s eligible closing costs and cash needed at closing.
2. Concession limits depend on the mortgage program, down payment and property type.
3. A seller credit isn’t unrestricted cash and generally can’t replace a required down payment.

What Is a Seller Concession?

A seller concession, sometimes called a seller credit, is something the seller agrees to pay on the buyer’s behalf as part of the real estate transaction.

In everyday homebuying language, the term usually refers to the seller covering some of the buyer’s closing costs or prepaid expenses.

For example, instead of agreeing to reduce a $400,000 home’s price, the seller might agree to provide a $10,000 credit toward eligible buyer costs at closing.

The buyer still purchases the home for the agreed price, but the credit can reduce the amount of money the buyer needs to bring to closing.

Mortgage programs use more technical terms such as interested party contribution or financing concession, and the definitions are not identical from one program to another. That’s why the lender should verify the proposed concession before the purchase contract is finalized.

What Can Seller Concessions Pay For?

Depending on the mortgage program and transaction, seller concessions may be able to cover eligible expenses such as:

• Loan origination charges
• Appraisal fees
• Title and settlement charges
• Prepaid property taxes
• Homeowners insurance premiums
• Initial escrow deposits
• Discount points
• Temporary or permanent interest rate buydowns when permitted
• Other eligible buyer closing costs

The seller doesn’t normally hand this money directly to the buyer. The credit is documented in the transaction and applied toward eligible expenses at closing.

A cash-to-close calculator can show how a seller credit may change the amount a buyer needs to bring to the transaction.

What Can’t Seller Concessions Pay For?

Seller concessions are not unrestricted money.

They generally cannot simply be converted into cash back to the buyer if the buyer doesn’t have enough eligible expenses to use the full credit.

Mortgage rules can also prevent concessions from being used for certain requirements.

For example, Fannie Mae does not allow interested party contributions to satisfy the borrower’s down payment, required reserves or minimum borrower contribution.

FHA similarly does not allow interested party contributions to satisfy the borrower’s minimum required investment.

Loan-specific rules matter, so buyers shouldn’t assume a large seller credit can substitute for money they are otherwise required to contribute.

How Much Can a Seller Contribute?

The maximum depends on the mortgage.

Those are program limits, not an amount the seller is required to provide.

The purchase agreement determines what the seller actually agrees to pay.

Conventional Loan Seller Concession Limits

For conventional loans backed by Fannie Mae or Freddie Mac, the maximum financing concession generally depends on the property’s occupancy and loan-to-value ratio.

Fannie Mae calculates the limit using the lower of the sales price or appraised value, rather than simply using the loan amount.

The concession also cannot exceed the buyer’s actual eligible closing costs without creating an excess concession that can affect underwriting.

Freddie Mac uses the same general 3%, 6%, 9% and 2% structure for standard financing concessions.

Conventional Seller Concession Example

Suppose you’re buying a $400,000 primary residence and financing more than 90% of its value.

Under the standard conventional limit, the maximum financing concession would generally be 3%.

$400,000 × 3% = $12,000

That doesn’t automatically mean you can receive a $12,000 credit.

If you have only $8,000 of eligible closing costs, the usable concession may be limited by those actual costs. The lender also needs to confirm the property’s value and the specific transaction.

How Much Can a Seller Contribute With an FHA Loan?

FHA allows interested parties to contribute up to 6% of the home’s sales price toward eligible borrower costs.

According to the current FHA Single Family Housing Policy Handbook, those costs can include origination fees, other closing costs, prepaid items and discount points.

The limit can also include certain temporary or permanent interest rate buydowns and other permitted expenses.

Contributions exceeding the buyer’s actual eligible costs or the 6% limit can be treated as an inducement to purchase and affect how the mortgage is calculated.

Seller contributions also cannot be used to satisfy the FHA borrower’s minimum required investment.

How Do Seller Concessions Work With a VA Loan?

VA financing treats seller concessions differently from conventional, FHA and USDA loans.

VA limits what it specifically defines as seller concessions to 4% of the home’s reasonable value.

But ordinary seller-paid closing costs aren’t necessarily included in that 4% calculation.

The Department of Veterans Affairs says sellers or builders can offer credits toward buyer closing costs without a separate VA cap on those ordinary closing-cost credits. The 4% limit applies to VA-defined concessions.

Examples of VA-defined concessions can include:

• Payment of the VA funding fee
• Payment of certain buyer debts or judgments
• Prepayment of property taxes or insurance
• Certain interest rate buydowns
• Other items of value provided at no additional cost to the buyer

Because VA distinguishes ordinary closing costs from seller concessions, buyers should have the lender verify how each proposed seller-paid item will be classified.

How Much Can a Seller Contribute With a USDA Loan?

USDA’s Single Family Housing Guaranteed Loan Program generally limits seller and other interested-party contributions to 6% of the sales price.

The contribution must be used for an eligible loan purpose.

USDA also specifically says seller funds used to pay the buyer’s real estate commission fees are not included in that interested-party contribution limit.

Seller Concession vs. Price Reduction

A seller concession and a price reduction change the economics of an offer in different ways.

For a buyer who has enough income for the monthly payment but wants to preserve cash, a concession may sometimes have a larger immediate benefit than an equivalent price reduction.

A buyer focused primarily on reducing the amount borrowed and long-term payment may value a lower purchase price differently.

The appropriate structure depends on the buyer’s finances, mortgage and the seller’s willingness to negotiate.

Seller Concession vs. Seller Credit

The phrases are often used interchangeably in everyday real estate conversations.

A buyer might ask for a “$7,500 seller credit” or “$7,500 in seller concessions” and mean that the seller will contribute $7,500 toward eligible closing expenses.

Mortgage guidelines can use more specific terminology.

For example, Fannie Mae and Freddie Mac distinguish between allowable financing concessions and other sales concessions. VA also defines seller concessions differently from ordinary seller-paid closing costs.

The terminology in the purchase contract and lender’s underwriting matters more than the casual label.

Are Seller Concessions the Same as Buyer-Agent Compensation?

Not necessarily.

A seller can agree to pay some or all of a buyer broker’s compensation, but mortgage programs may treat that payment differently from an ordinary seller credit toward closing costs.

For example, Fannie Mae has said seller-paid buyer-agent fees that remain common and customary in a local market do not have to be counted toward its interested-party contribution limits.

USDA similarly states that seller funds used to pay the buyer’s real estate commission fees aren’t included in its 6% interested-party contribution limit.

So don’t automatically add buyer-agent compensation to a seller concession and assume the same percentage limit applies to the entire amount.

The lender should determine how the payment is treated under the specific mortgage program.

Can Seller Concessions Pay for Discount Points?

Often, yes.

Discount points are an upfront cost paid to obtain a lower mortgage interest rate.

FHA expressly includes eligible discount points within its interested-party contribution framework, and conventional mortgage rules can also permit financing concessions toward eligible closing costs and rate-buydown structures.

VA allows sellers to pay discount points, although VA’s classification of ordinary points versus seller concessions can affect whether the payment falls within its 4% concession cap.

Ask the lender to price the mortgage both with and without points so you can see whether using the seller credit for a rate reduction makes sense for your transaction.

Can a Seller Pay for a Temporary Rate Buydown?

Potentially.

A temporary buydown uses money contributed at closing to reduce the borrower’s effective payment for an initial period before the payment rises to the full note-rate amount.

FHA and VA both permit certain seller-funded temporary buydowns under their current rules.

VA specifically treats a seller-funded temporary buydown as a seller concession subject to its 4% concession limit.

Loan-program and lender requirements still apply, and borrowers are generally qualified using the payment required under the program’s underwriting rules rather than assuming the temporary lower payment lasts forever.

Can Seller Concessions Cover the Down Payment?

Generally, seller concessions shouldn’t be viewed as a substitute for the buyer’s required down payment.

For example, Fannie Mae does not permit interested party contributions to satisfy the borrower’s down payment, reserve requirement or minimum borrower contribution.

FHA also prohibits interested party contributions from being used for the borrower’s minimum required investment.

Buyers who need help with the down payment may have other potential sources, including eligible gifts or down payment assistance programs, depending on the mortgage.

Can You Get Cash Back From a Seller Concession?

Generally, no.

Seller concessions are intended to pay eligible transaction costs, not provide the buyer with unrestricted cash after closing.

With a conventional loan, for example, Fannie Mae says financing concessions must be no greater than the borrower’s actual closing costs. Amounts above eligible costs are treated differently for underwriting purposes.

If you negotiate a $10,000 seller credit but ultimately have only $7,000 in costs that qualify, don’t assume you’ll receive the unused $3,000.

Ask your lender and real estate agent whether the contract can be adjusted before closing if it appears that part of the credit will go unused.

Can You Ask for Seller Concessions After an Inspection?

Yes, if the purchase contract and negotiation process allow it.

Seller credits are sometimes negotiated after a home inspection identifies issues.

For example, instead of asking the seller to complete a non-required repair before closing, a buyer might negotiate a seller credit toward allowable closing costs. That can preserve more of the buyer’s own money to address the issue after the purchase.

The credit itself still needs to satisfy mortgage rules.

A buyer generally can’t convert the concession into unrestricted repair money, and health, safety or property-condition issues required by the lender may still need to be corrected before closing.

How Do You Ask for Seller Concessions?

Seller concessions are negotiated like other terms of the purchase.

You can include a concession request when making an offer on a house or negotiate one later if permitted by the contract.

A request might specify a dollar amount or an amount up to a stated limit, subject to the mortgage program and actual eligible costs.

Before finalizing the request:

1. Ask your lender how much seller contribution your mortgage permits.
2. Estimate your actual eligible closing costs.
3. Decide which costs you want the credit to offset.
4. Have the appropriate real estate professional prepare clear contract language.
5. Confirm any revised agreement with the lender.

This can prevent negotiating a credit that is larger than you can actually use.

Why Would a Seller Agree to a Concession?

A seller doesn’t have to agree to pay a buyer’s costs.

But concessions can become another negotiating tool.

A seller might consider one to:

• Make an offer work without lowering the purchase price
• Address a buyer’s closing-cost concerns
• Resolve part of an inspection negotiation
• Make the property more competitive with other listings
• Help keep an existing transaction moving toward closing

Whether a seller is willing to contribute often depends on the strength of the offer and conditions in the local market.

Can Seller Concessions Affect the Appraisal?

They can matter to the appraisal and mortgage underwriting.

An appraiser analyzes whether concessions influenced the contract price and how concessions are affecting comparable sales in the local market.

A concession does not automatically mean a home is overpriced.

But unusually large concessions can become more important when the lender evaluates whether the property’s value supports the transaction.

Concessions that exceed the mortgage program’s allowable limits can also require underwriting adjustments.

When Do Seller Concessions Make Sense?

A seller concession can be particularly useful when the buyer can afford the mortgage payment but wants to reduce the upfront cash required to complete the purchase.

It may also make sense when a buyer wants to use the credit for eligible discount points or a permitted rate buydown instead of negotiating solely over purchase price.

But a concession isn’t automatically better than a price reduction.

Compare how each option affects:

• Cash needed at closing
• Loan amount
• Monthly payment
• Interest rate
• Appraisal risk
• Long-term borrowing cost

Your lender can calculate the mortgage-specific impact before you change the offer.

Bottom Line

A seller concession is a negotiated contribution that can help pay eligible buyer expenses at closing.

That can make concessions especially useful for buyers who can afford the ongoing mortgage payment but want to reduce the amount of cash required upfront.

The limits aren’t universal. Conventional limits generally depend on LTV and occupancy, FHA and USDA generally permit contributions up to 6%, and VA applies a separate 4% cap to the items it specifically defines as seller concessions.

Before putting a concession into an offer, ask the lender how much the mortgage permits and which costs can actually be paid. Negotiating more credit than the loan allows or the buyer can use doesn’t provide an additional benefit at closing.

FAQ

What is a seller concession in real estate?

A seller concession is an agreement for the seller to pay eligible expenses that would otherwise be the buyer’s responsibility, commonly including some closing costs or prepaid expenses.

What is the maximum seller concession?

It depends on the mortgage. Conventional financing generally allows 3% to 9% for primary residences and second homes depending on LTV, with a typical 2% limit for investment properties. FHA and USDA generally allow up to 6%. VA applies a 4% limit to VA-defined seller concessions while treating certain ordinary closing costs separately.

Can seller concessions pay closing costs?

Yes. Covering eligible buyer closing costs is one of the most common uses of seller concessions. The exact costs and maximum contribution depend on the mortgage program and transaction.

Can seller concessions be used for the down payment?

Generally, don’t treat seller concessions as a replacement for the required down payment. Conventional and FHA rules, for example, restrict interested-party contributions from satisfying required borrower contributions.

Can a seller pay all of the buyer’s closing costs?

Potentially, if the costs are eligible and the total contribution remains within the applicable mortgage-program limit. The buyer cannot simply receive unused concession money as unrestricted cash.

Is a seller concession the same as lowering the price?

No. A price reduction lowers the home’s purchase price. A seller concession generally keeps the agreed price in place while applying seller funds toward eligible buyer costs.

Can seller concessions pay for discount points?

Often, yes. Several mortgage programs allow seller contributions toward eligible discount points, although program limits and lender requirements apply.

Can a seller pay for a temporary mortgage buydown?

Potentially. Temporary buydowns can be funded by sellers under certain mortgage programs. How the contribution is classified and limited depends on the loan.

Can you ask for a seller concession after the home inspection?

Potentially. Buyers and sellers may negotiate a credit after an inspection when permitted by the purchase contract. Any credit still must comply with the buyer’s mortgage requirements.

Do seller concessions reduce cash to close?

Yes, when the credit pays eligible buyer expenses. Seller credits reduce the portion of those costs the buyer must fund personally and therefore can reduce cash needed at closing.