Quick answer: Seller concessions (also called seller-paid closing costs) are contributions a seller makes toward a buyer’s closing costs or prepaid expenses. The maximum depends on the loan: conventional 3%, 6% or 9% depending on down payment, FHA 6%, VA 4% on certain concessions, and USDA 6%.
When buying a home, many buyers focus on the purchase price, but there’s another valuable tool that can make a real estate deal more favorable—seller concessions. Seller concessions allow the seller to contribute toward the buyer’s closing costs or other expenses, reducing the financial burden on the buyer and making homeownership more attainable.
What Are Seller Concessions?
Seller concessions are agreements in which the seller pays for specific costs on behalf of the buyer. These costs may include:
- Loan origination fees
- Appraisal fees
- Property taxes
- Title insurance
- Homeowner’s insurance
- Discount points to lower the interest rate
The amount a seller can contribute depends on the type of loan the buyer is using. Conventional loans, FHA loans, and VA loans all have different limits on how much the seller can contribute.
Key Benefits of Seller Concessions
1. Lower Out-of-Pocket Costs for Buyers
One of the biggest advantages of seller concessions is reducing the upfront cash needed to close on a home. Buying a home requires a substantial down payment, closing costs, and other expenses. Seller concessions can help offset these costs, making homeownership more accessible.
2. Helps Buyers Afford a Home Sooner
For many buyers, saving for a down payment and closing costs can take years. With seller concessions, buyers may be able to purchase a home sooner rather than waiting until they have saved enough money to cover all expenses.
3. Makes Homes More Marketable for Sellers
Sellers can use concessions as an incentive to attract buyers, especially in a slow market. By offering to cover some or all of the buyer’s closing costs, sellers can make their property stand out and potentially sell their home faster.
4. Can Help Buyers Secure a Lower Interest Rate
Buyers can use seller concessions to buy down their mortgage interest rate, which can lead to significant savings over the life of the loan. This can result in lower monthly payments, making the home more affordable in the long run.
5. Helps Buyers Keep More Cash Reserves
Instead of using all their savings to cover closing costs, buyers who receive seller concessions can keep more money in their reserves. This extra cash can be used for home improvements, emergency funds, or unexpected expenses after moving in.
Example of Seller Concessions in Action
Let’s say a buyer is purchasing a home for $300,000 and the estimated closing costs are $9,000. If the seller agrees to provide 3% in concessions ($9,000), the buyer does not have to pay these fees out of pocket. Instead, the seller’s contribution covers them, allowing the buyer to focus on the down payment and moving expenses.
Next step: Wondering how much a seller credit could save you? Share your price range and loan type and a loan officer will walk you through your cash to close.
No obligation. Actual costs depend on your loan and property. You will answer a few quick questions about your home purchase so we can offer you the best options. It only takes a few minutes.
How Much Can a Seller Contribute? Limits by Loan Type
Yes, the maximum amount of seller concessions depends on the loan type:
| Loan type | Typical maximum seller concession |
| Conventional (primary residence) | 3% with less than 10% down; 6% with 10% to 25% down; 9% with more than 25% down |
| FHA | Up to 6% of the purchase price |
| VA | 4% cap on certain concessions (such as paying the buyer’s funding fee or debts); sellers can also pay normal closing costs |
| USDA | Up to 6% of the purchase price |
Investment properties are limited to 2%. These limits come from Fannie Mae, HUD, VA and USDA guidelines. Seller contributions also include other interested-party payments, such as from a builder or real estate agent.
Potential Downsides of Seller Concessions
While seller concessions provide numerous advantages, there are some potential drawbacks:
- Higher Purchase Price: Sellers may increase the home’s price to offset the concessions, which could impact the home’s appraised value.
- Lender Restrictions: Some lenders may limit the amount of seller concessions allowed.
- Competitive Market Challenges: In a seller’s market, offering concessions may not be as effective since sellers have multiple offers to choose from.
Final Thoughts
Seller concessions can be a powerful tool to make homeownership more affordable and attractive to buyers. For sellers, offering concessions can help expedite the sale of their property. However, buyers should work closely with their real estate agent and lender to ensure seller concessions are structured properly and align with their financial goals.
By understanding how seller concessions work and negotiating effectively, both buyers and sellers can benefit from this strategic approach in a real estate purchase contract.
Frequently Asked Questions
What are seller concessions?
Agreements in which the seller pays certain buyer costs, such as loan fees, title insurance, prepaid taxes and insurance, or discount points.
How much can a seller contribute toward closing costs?
It depends on the loan type and down payment. Conventional loans allow 3%, 6% or 9%, FHA allows up to 6%, VA caps certain concessions at 4%, and USDA allows up to 6%.
Can seller concessions pay for a rate buydown?
Yes, within the limits for your loan type. Concessions can fund discount points or a temporary buydown such as a 2/1 buydown.
Next step: Seller concessions work best when your financing is lined up first. Get pre-approved so you and your agent know exactly what to ask for.
No obligation. It only takes a few minutes.
Sources
- Fannie Mae Selling Guide, B3-4.1-02 Interested Party Contributions
- HUD Handbook 4000.1 (FHA)
- VA, Funding fee and closing costs
- USDA Handbook HB-1-3555, Chapter 6
Tithe Lending LLC | NMLS #2439006 | Equal Housing Lender. General information only; not a loan offer or financial, tax or legal advice.