How seller credits work
A concession is a transfer of cash at closing from your side to the buyer's. It is not a price reduction: the sale records at the contract price, and the credit is applied to the buyer's allowable costs.
- Allowable costs - Lender fees, title and escrow charges, prepaid interest, taxes and insurance reserves, and discount points. Anything outside that list cannot be paid with the credit.
- Loan-to-value - The conventional cap moves with LTV, so the buyer's down payment determines how much you can offer before you sign.
- Investment property - Second homes and rentals are capped lower - typically 2% on conventional loans - because the lender sees more risk.
When a credit beats a price cut
- Appraisal risk - A credit keeps the contract price intact, which helps the appraisal support the loan and keeps your neighbourhood comps clean.
- Cash-poor buyers - A buyer who can cover the down payment but not the closing costs is exactly who a credit is for. It can be the difference between a closed sale and a dead deal.
- Rate buydown - Points paid from a seller credit lower the buyer's payment for the life of the loan, which can be more attractive than the same money off the price.
Frequently asked questions
What are seller concessions?
A credit the seller agrees to give the buyer at closing, usually toward the buyer’s loan fees, title costs, or prepaid items. It is negotiated in the contract as a percentage of the price or a flat dollar amount and appears as a debit to the seller on the settlement statement.
What is the maximum seller concession?
Conventional loans allow 3% when the loan-to-value is above 90%, 6% between 75.01% and 90%, and 9% at 75% or below. FHA allows 6%, USDA allows 6%, and VA allows 4% in concessions. Investment properties are capped at 2%.
Why does the down payment change the limit?
Conventional limits are tied to loan-to-value because a smaller loan against the same price is less risky for the lender. Put 25% down and the cap jumps to 9%; put 5% down and it falls to 3%.
What happens if the credit exceeds the cap?
The lender will not apply the excess to closing costs. It either reduces the sale price, gets renegotiated, or is lost. Check the limit before signing - agreeing to 6% on an FHA loan when the buyer only needs 3% wastes your money.
Do concessions hurt the sale price?
They lower your net, not the recorded price, so the sale still shows at full value in the MLS. That matters for appraisals and future comps, which is why sellers often prefer a credit over a price cut.
Can concessions cover the down payment?
No. On most programs the credit is limited to closing costs, prepaids, and rate buydowns - it cannot fund the buyer’s down payment. Government programs with down payment assistance handle that separately.
Estimates only. Program limits come from published agency guidelines and can change. Confirm the allowable amount with the buyer's lender before the credit goes into a contract.
