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Seller Concessions Explained

A seller concession is money the seller contributes toward your closing costs. It lowers the cash you need at the table without lowering your down payment, and every loan program caps how much you can take.

What a concession can and cannot pay for

Concessions apply to closing costs and prepaid items: origination charges, title and escrow fees, recording fees, the appraisal, the first year of homeowners insurance, prepaid interest, and the initial escrow deposit. A concession can also fund a temporary rate buydown.

A concession cannot be applied to your down payment. That distinction matters, because a buyer short on the down payment is not helped by a seller credit no matter how large.

The limits by loan type

Conventional limits scale with your down payment on a primary residence: three percent of the price with less than ten percent down, six percent from ten to twenty-five percent down, and nine percent above that. Investment properties cap at two percent.

FHA allows up to six percent of the sales price. VA allows four percent in seller concessions, though normal closing costs the seller pays on the buyer's behalf are treated separately. USDA allows up to six percent.

Exceeding the cap does not get you the extra money. The excess is simply removed from the transaction or forces a price reduction instead, so the numbers should be checked before the offer is written.

Concession versus price reduction

A seller credit gives you cash relief now. A price cut gives you a smaller loan, a lower payment, and less interest for the life of the loan. Which one wins depends on what is actually constraining you.

If cash to close is the binding constraint, take the credit. If you have the cash and want the lowest long-run cost, take the price reduction. Sellers often prefer the credit because it keeps the recorded sale price up.

One limit applies in both directions. A concession cannot exceed your actual closing costs. If the seller credits eight thousand dollars against six thousand of costs, the extra two thousand disappears rather than coming back to you.

The appraisal constraint

A concession is negotiated into the price, so a buyer asking for a large credit is usually paying a higher price to fund it. That raises the number the appraiser has to support.

If the appraisal comes in below the contract price, the lender lends against the appraised value and the concession structure has to be reworked. This is the most common way a concession-heavy deal falls apart.

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Frequently asked questions

What is a seller concession?

Money the seller contributes toward your closing costs and prepaid items. It reduces cash to close but cannot be applied to your down payment.

How much can a seller contribute?

Conventional allows three to nine percent depending on your down payment, FHA allows six percent, VA allows four percent in concessions, and USDA allows six percent.

Can a seller pay my down payment?

No. Seller contributions apply only to closing costs, prepaid items, and rate buydowns. The down payment must come from your own eligible funds.

What happens if the concession is larger than my closing costs?

The excess is lost. A credit cannot be paid out to you in cash, so the amount should be sized to your actual estimated costs.

Is a seller credit better than a lower price?

A credit helps if cash to close is your constraint. A price reduction lowers your loan balance and payment permanently, which costs less over time.

Can a seller concession pay for a rate buydown?

Yes. Funding a temporary 2-1 buydown or permanent discount points is one of the most common uses of a seller credit.