Can seller concessions cover closing costs?
Yes. A seller can agree to pay some or all of your closing costs and prepaid items as a concession, up to two limits: your loan program's cap on interested-party contributions and your actual costs. Concessions generally cannot pay your down payment or be taken as cash, and any amount above the limits is lost or must come off the price.
What a concession can and cannot pay
| Usually allowed | Usually not allowed |
|---|---|
| Lender fees, appraisal, title and settlement charges | Your down payment |
| Prepaid interest, insurance premiums and escrow deposits | Required reserves |
| Discount points or a rate buydown | Cash back to you |
| Recording fees and transfer taxes the buyer owes | Amounts above your actual closing costs |
The limits
For conventional loans sold to Fannie Mae, financing concessions from the seller, builder or agent are capped by occupancy and loan-to-value, measured on the lower of the price or appraised value:
| Occupancy | Loan-to-value | Maximum |
|---|---|---|
| Principal residence or second home | Above 90% | 3% |
| Principal residence or second home | 75.01% to 90% | 6% |
| Principal residence or second home | 75% or less | 9% |
| Investment property | Any | 2% |
Anything above the cap, or above your actual closing costs, is treated as a sales concession and deducted from the price for underwriting. FHA, VA and USDA loans have their own limits, and your lender may be stricter; confirm the figure for your loan before you write the offer.
Worked example: a concession versus a price cut
A $6,000 seller concession versus a $6,000 price cut
Illustrative example - round numbers, not current market data. Calculated with Reaixo's calculator engines.
Assumptions
- Price
- $400,000
- Down payment
- 10%
- Rate
- 6.75%, 30 years
- Buyer closing costs
- 3% of price
- Property tax
- 1.2% of price a year
| Step | Calculation | Result |
|---|---|---|
| 1. Fannie Mae limit at 90% LTV (6% of price) | $400,000 × 6% | $24,000 |
| 2. Cash to close with the concession | down payment + closing costs − credit | $46,000 |
| 3. Cash to close with the price cut | down payment + closing costs | $51,220 |
| 4. Monthly payment with the concession | principal, interest and tax | $2,734.95 |
| 5. Monthly payment with the price cut | principal, interest and tax | $2,693.93 |
Cash saved at closing by the concession: $5,220. The concession saves the buyer $5,220 of cash now; the price cut saves about $41 a month instead. Short on cash? The concession usually helps more. The seller nets about the same either way.
What this calculation leaves out
- A concession can only pay allowable closing costs and prepaids, never the down payment, and not more than the costs.
- Limits differ for FHA, VA and investment properties.
Cash to close: from total owed to the wire amount
Cash to close is what you bring on closing day: everything you owe, less money already paid and credits from the seller or lender.
- Total owed
- $52,000
- Down payment, costs and prepaids
- Cash to close
- $45,000
- Usually sent by wire
Show the numbers as a table
| Step | Amount |
|---|---|
| Down payment | +$40,000 |
| Closing costs | +$9,000 |
| Prepaids and escrow | +$3,000 |
| Earnest money already paid | −$5,000 |
| Seller and lender credits | −$2,000 |
| Cash to close | $45,000 |
Formula
Cash to close = Down payment + Closing costs + Prepaids − Earnest money − CreditsAssumptions
- Credits can pay closing costs and prepaids, not the down payment; lenders cap them.
- Your Closing Disclosure states the exact figure at least three business days before closing.
- Confirm wire instructions by phone with your closing agent - wire fraud is common.
How to ask for one
- Get your Loan Estimate first so you know your actual closing costs and prepaids.
- Check the cap for your loan type and down payment.
- Write the concession into the offer as a dollar amount or percentage "toward buyer's closing costs and prepaids".
- If the seller agrees to more than you can use, ask to convert the excess into a price reduction before closing.
Frequently asked questions
How much can a seller pay toward closing costs?
It depends on the loan. For Fannie Mae conventional loans on a home you will live in, it is 3%, 6% or 9% of the price depending on your loan-to-value; investment properties are limited to 2%.
Can seller concessions be used for the down payment?
No. Fannie Mae does not allow interested-party contributions to pay the down payment, and other programs have similar rules.
What happens if the concession is more than my closing costs?
The excess cannot be paid to you. It is treated as a sales concession, so ask the seller to lower the price by that amount instead.
Do seller concessions raise the price?
Sometimes buyers offer a higher price in exchange for a concession. The home must still appraise at that price, or the gap has to be covered.
Calculators and guides
Recommended next step
Know how much a concession can actually cover before you negotiate.
Estimate your closing costs →Sources and review
- Selling Guide B3-4.1-02, Interested Party Contributions (IPCs), Fannie Mae. Supports: Interested party contribution limits, the ban on funding the down payment and the treatment of excess contributions.
- What fees or charges are paid when closing on a mortgage and who pays them?, Consumer Financial Protection Bureau. Supports: What closing costs include and who pays them.
Where this applies: United States. Limits are set by each loan program (Fannie Mae, Freddie Mac, FHA, VA, USDA) and lender; who customarily pays which costs varies by state.
Last reviewed: · Updated:
Worked examples use illustrative round numbers, not current market data. Rates, limits and program rules change - confirm current figures with your lender or a qualified professional.
General educational information, not financial, legal, tax or real estate advice. Rules vary by loan program, transaction and location - verify important decisions with qualified professionals.