Seller concessions are written into the purchase agreement, usually as a dollar amount or a percentage of the price, and appear as a credit on the Closing Disclosure at closing. They help buyers who have the down payment but are short on cash for closing costs.
What can seller concessions pay for?
Most concessions go toward the buyer’s closing costs: lender fees, discount points to buy down the rate, title charges, prepaid interest, and the taxes and insurance that fund the buyer’s escrow account. A concession can also stand in for repairs, giving the buyer a credit instead of fixing an item
Loan rules limit how concessions are used. Under Fannie Mae’s guidelines, for example, contributions from the seller or other interested parties can pay closing costs and prepaids but can’t count toward the down payment or the reserves a
How much can a seller contribute?
Each loan program caps concessions as a share of the price or appraised value, whichever is lower. For a conventional loan through Fannie Mae on a main home or second home, the cap depends on the loan-to-value ratio: 3% when the buyer puts down less than 10%, 6% with 10% up to 25% down, and 9% with 25% or more down. Investment properties are capped at 2%. FHA, VA and USDA loans set their own limits, so the buyer’s lender has
Anything over the program’s cap is treated as a price reduction for the loan. And because a buyer generally can’t take leftover credit as cash, a credit larger than the costs it can pay for is usually
Is a concession better than a price cut?
For the seller, the two cost about the same: an $8,000 credit and an $8,000 price reduction both lower your net proceeds by roughly $8,000. A price cut also trims anything figured on the price, like a percentage commission or the transfer
For the buyer, the difference is cash. A price cut lowers the loan and the down payment slightly; a credit puts the full amount toward costs due at closing. The CFPB notes the trade-off: a seller who agrees to a credit will often ask for a higher price to cover it, so the buyer pays for it over the life
How do concessions differ from paying the buyer’s agent?
Since August 2024, sellers decide separately whether to offer compensation to a buyer’s agent. NAR describes a concession as something different: the seller covering certain costs of the buyer’s purchase. Whether a buyer can put a concession toward their own agent’s fee depends on the loan program, so check with the lender before writing it
Example: an $8,000 seller credit on a $400,000 home
| Contract price | $400,000 |
|---|---|
| Seller credit toward the buyer’s closing costs | $8,000 (2% of the price) |
| Buyer’s closing costs and prepaids (assumed) | $12,000 |
| Buyer’s costs due at closing after the credit | $4,000 |
| Fannie Mae cap for a main home with 10% down | 6%, or $24,000 |
| Change in the seller’s net proceeds | −$8,000 |
With 10% down, an $8,000 price cut instead would lower the buyer’s down payment by only $800 and leave all $12,000 of closing costs due. The numbers are illustrative; the buyer’s lender confirms what a credit
Common mistakes
- Agreeing to a credit larger than the buyer’s closing costs and prepaids; the extra usually
can’t be used. - Assuming every loan allows the same amount. Conventional, FHA, VA and USDA loans each set
their own caps. - Forgetting that a credit lowers the seller’s proceeds just as a
price cut does. - Agreeing to a credit verbally. The lender and settlement agent work from
the written contract.
Questions
Do seller concessions affect the appraisal?
The appraisal still has to support the contract price. If a credit was built into a higher price and the home appraises lower, the buyer and seller may need to renegotiate, as with any appraisal gap.
Can a buyer ask for concessions in a seller’s market?
They can ask, but in a seller’s market sellers are more likely to say no or to favor a higher offer with a credit built in. In a buyer’s market, concessions are a common way to close a deal without cutting
Is a seller credit the same as a seller concession?
People use the terms interchangeably. A seller credit is the most common kind of concession: a dollar amount the seller gives the buyer at closing
Sources
- Fannie Mae Selling Guide B3-4.1-02: Interested party contributions
- CFPB: What fees or charges are paid when closing on a mortgage?
- CFPB: Closing Disclosure explainer
- NAR: Consumer guide to offers of compensation
Written and checked by the Broker & Agent team on October 2, 2026. General information, not legal, tax or lending advice. Something out of date? Tell us.