Understanding Seller Concessions
Seller concessions — formally “Interested Party Contributions” — are funds the seller agrees to put toward your closing costs, prepaid expenses, or rate buydown as part of the deal. They cannot touch your down payment, and every loan program caps them: FHA allows up to 6% of the purchase price, VA 4% (plus closing costs on top), and conventional loans 2-9% depending on occupancy and down payment. Used well, they meaningfully cut what you bring to the table.
What exactly are seller concessions?
In simple terms, seller concessions are financial contributions a seller agrees to make toward the costs of purchasing a home. They ease the burden of upfront costs — and in a balanced market, they are very much on the negotiating table.
What costs can seller concessions cover?
- Closing costs: A significant portion can be covered, including origination fees, appraisal fees, title insurance, and recording fees.
- Prepaid expenses: Your first year of homeowners insurance, the funds to seed your escrow account for taxes and insurance, and prepaid interest due at closing.
- Buydown points: Concessions can sometimes fund discount points that reduce your interest rate and lower your monthly payment.
What are the maximum allowed seller concessions?
The limits depend on the loan program and occupancy type:
| Loan type | Max allowed concessions |
|---|---|
| FHA | 6% of purchase price |
| VA | 4% of purchase price. Unlimited for “closing costs” — see below |
| USDA (Rural Development) | 6% of purchase price — see below |
| Conventional (Fannie Mae & Freddie Mac) | Primary and second home: 3% for down payments under 10% · 6% for down payments of 10–25% · 9% for down payments of 25% or more. Investment: 2% of purchase price |
| Non-QM | Primary and second home: 6% for down payments under 20% · 4% for down payments of 20% or more. Investment: maximum 3% |
How USDA loans handle concessions
USDA bases the LTV ratio on the appraised value rather than the purchase price. So if the home appraises higher than the purchase price, the loan amount can increase up to the appraised value to cover closing costs, prepaid costs, and similar expenses.
How VA loans handle concessions
The VA does not consider the paying of closing costs a “seller concession.” Sellers may cover 100% of the buyer’s closing costs in addition to the 4% for concessions proper, which include, but are not limited to:
- payment of the buyer’s VA funding fee
- prepayment of the buyer’s property taxes and insurance
- gifts such as a television set or microwave oven
- payment of extra points to provide permanent interest rate buydowns
- provision of escrowed funds to provide temporary interest rate buydowns
- payoff of credit balances or judgments on behalf of the buyer
What concessions cannot do
- They cannot be used toward the minimum down payment requirement.
- They cannot exceed the actual amount of your closing costs and prepaid expenses. If you have excess concessions, look at adding a home warranty or buying down the interest rate — any leftover credit is returned to the seller.
Why would a seller offer concessions?
- Increase marketability: A home offered with concessions can attract more buyers, especially when inventory is plentiful.
- Negotiate a higher sale price: Sellers might trade concessions for a higher overall selling price.
- Address inspection findings: When the inspection reveals minor repairs, a credit can resolve them and keep the sale moving.
How do you negotiate seller concessions?
- Do your research: Understand typical closing costs in your area and any repair needs from the inspection.
- Be clear about your request: Specify the exact concessions you are seeking and their purpose.
- Consider the overall offer: Concessions affect how attractive your offer looks, since the seller nets the price minus the credit — sometimes a slightly higher price with a credit wins for both sides.
Frequently asked questions
Do seller concessions come out of pocket from the seller?
Normally no — they come out of the seller’s net proceeds at closing. Only if the seller owes more than the home is worth would a credit require cash out of pocket, which few sellers would agree to.
Can seller concessions be used for a down payment?
No. The credit can only go toward closing costs, escrows, and prepaids. Gift money, by contrast, typically can be used toward a down payment — a distinction worth discussing with your lender.
How do you write an offer with seller concessions?
Specific language is used, but it is usually simple — something along the lines of “the seller agrees to credit the buyer $8,000 towards their closing costs, escrows, and pre-paids at closing.”
Can a buyer request a seller concession for home repairs?
Yes, it is common. Many buyers put most of their savings toward the down payment and closing costs, so a credit toward replacing the carpet or an appliance can keep the deal workable for everyone.
Seller concessions are a valuable tool for managing upfront home buying costs — but only if your loan program’s limits are part of the plan from the start. At Priority Home Mortgage, we are committed to empowering you throughout the home buying journey. Contact the team to discuss your mortgage options and how concessions fit your offer.