Mortgage closing costs range from 2-5% of a home’s purchase price. That can add up. But, many sellers are eager to pay your closing costs in order to sell their home faster.
There is a limit to how much a seller can pay for, though. Each loan type — conventional, FHA, VA, and USDA — sets maximums on seller-paid closing costs.
Getting help with your closing costs when buying a home can make a huge difference in affordability. Seller concessions, also called seller credits, are one way to get this help. With a conventional loan, the seller can pay between 3% and 9% of the purchase price towards your closing costs and prepaids. But maximum seller concessions depend on the size of your down payment.
What Are Seller Concessions?
Seller concessions are when the home seller agrees to pay for some or all of the buyer’s closing costs, This saves the buyer money at closing,
Seller concessions are considered interested party contributions (IPCs) IPCs include any closing cost help given to the buyer by someone who benefits from the sale
- The seller
- The builder
- The developer
- The real estate agent
Lender credits from the profit margin are not IPCs. This means your lender can give you closing cost help on top of the maximum seller concession.
Conventional Loan Seller Concession Limits
With a conventional loan, the maximum interested party contributions are:
If your down payment is:
-
Less than 10% – IPCs cannot exceed 3% of the sales price
-
10% to 25% – IPCs cannot exceed 6% of the sales price
-
More than 25% – IPCs cannot exceed 9% of the sales price
For example:
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You make a 5% down payment on a $300,000 home. The max IPC you could receive is 3% of $300,000, or $9,000.
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You make a 20% down payment on a $300,000 home. The max IPC you could receive is 6% of $300,000, or $18,000.
The seller concession counts toward the maximum IPC amount you can receive. Any additional help from the lender, agent, or other parties would reduce the maximum seller concession allowance.
You cannot use seller concessions for:
- Your down payment
- Financial reserves
- To meet minimum borrower contribution requirements
But seller credits can free up your own cash to put toward these items.
How Seller Concessions Help You Buy
Coming up with the down payment and thousands in closing costs is tough for first-time homebuyers.
But seller concessions reduce your cash outlay. Here are two examples of how they help:
Scenario 1
- Down payment required: $18,000
- Closing costs: $8,000
- Total cash needed: $26,000
With a $8,000 seller concession:
- Your cash for down payment: $18,000
- Seller pays closing costs: $8,000
- Total cash you need: $18,000
Scenario 2
- Down payment required: $18,000
- Closing costs: $8,000
- You have $20,000 cash
- Total needed: $26,000
With an $8,000 seller concession:
- Your cash for down payment: $18,000
- Seller pays closing costs: $8,000
- Total cash you need: $18,000
The seller concession reduces your total cash requirement to the down payment amount. This allows you to qualify for the loan.
Seller credits can also help you avoid extra monthly costs. For example, the seller can pay your first year of homeowners insurance premiums in lieu of a lower concession amount.
What the Seller Concession Can Pay For
Typical fees the seller concession can go toward include:
- Origination charges
- Appraisal fee
- Credit report fee
- Title insurance
- Escrow or settlement charges
- Attorney fees
- Recording fees
- Transfer and mortgage taxes
- Homeowners insurance
- Property taxes
- HOA dues
- Discount points
- Loan origination points
Always verify with your lender that the seller concession can be applied to specific fees.
How to Get the Maximum Seller Concession
The maximum seller concession depends on your down payment amount. But here are some tips to negotiate the highest concession possible:
Leverage the inspection
Many sellers would rather give a credit than make repairs. So use any inspection issues to negotiate a higher seller concession.
Note any flaws upfront
Point out any existing flaws or needed updates when making your offer. Then ask the seller to credit your closing costs accordingly.
Ask if seller needs quick close
Sellers under deadline pressure are often more willing to negotiate. Their motivation is a faster sale.
Have your agent negotiate
Your agent will know the seller’s motivations best. And they can make the request for you.
Talk to your lender
Ask what the max seller concession is on your particular loan. Then use that amount when negotiating with the seller.
Consider a price reduction
If the seller won’t budge on the concession, see if they’ll reduce the purchase price instead.
Shop around
A motivated seller on another property may agree to a higher concession amount.
3 Scenarios Where Seller Concessions Help
Beyond just the dollar amount, seller concessions can be key in certain situations:
1. Conventional loan with less than 20% down
The lower your down payment, the lower the maximum IPC you can receive. Seller concessions help cover your closing costs when you put down less than 20%.
2. Gift funds situation
Gift funds cannot be used to cover closing costs. But a seller concession gives you that extra money you need.
3. Paying points to buy down interest rate
Seller credits give you additional funds to pay discount points and lower your rate.
Alternatives If the Seller Won’t Concede
Some sellers simply won’t agree to pay any of your closing costs. In that case, consider:
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Lender credits – Your lender might cover some fees using its own funds.
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Family gift – Asking parents or family for help with closing costs.
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Borrower credits – Paying fees yourself in exchange for a higher interest rate.
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Mortgage credit certificate (MCC) – Get a tax credit equal to a percentage of your mortgage interest.
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Using retirement funds – Withdrawing from a 401k or IRA penalty-free to cover buyer fees.
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Splitting costs – Asking the seller to pay half the closing costs.
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Shopping around – Using a lender that charges lower fees overall.
How Much to Ask For?
Aim high when requesting seller concessions, but have a few strategies ready:
- Ask for 100% of your closing costs
- Then offer to split closing costs 50/50
- Finally, request the maximum allowed based on your down payment
Also be ready to make concessions yourself – like accepting the home in “as is” condition.
Seller Credits Can Improve Affordability
Closing costs often run $6,000 to $10,000 or more. For buyers already stretching their budget to afford the down payment, this additional cash outlay can be a breaking point.
Seller concessions relieve the burden of coming up with thousands of dollars in buyer closing costs. A credit from the seller may determine whether or not you can afford to buy the home.
Now you know the maximum amount of closing cost help you can get based on your down payment and loan type. With this information in hand, you can enter the negotiation from a position of knowledge and strength.
VA loan seller contribution maximum
The seller may contribute up to 4% of the sale price, plus reasonable and customary loan costs on VA home loans. Total contributions may exceed 4% because standard closing costs do not count toward the total.
According to VA guidelines, the 4% rule only applies to items such as:
- Prepayment of property taxes and insurance
- Appliances and other gifts from the builder
- Discount points above 2% of the loan amount
- Payoff of the buyer’s judgments and debts
- Payment of the VA funding fee
For example, a buyer’s core closing costs for things like appraisal, loan origination, and the title equal 2% of the purchase price. The seller agrees to prepay taxes, insurance, the VA funding fee, and a credit card balance equal to 3% of the sales price.
This 5% contribution would be allowed because 2% is going toward the core loan closing costs.
USDA loan guidelines state that the seller may contribute up to 6% of the sales price toward the buyer’s reasonable closing costs. Guidelines also state that closing costs can’t exceed those charged by other applicants by the lender for similar transactions such as FHA-insured or VA-guaranteed mortgage loans.
Seller-paid costs fall within a broader category of real estate-related funds called interested party contributions or IPCs. These costs are contributions that incentivize the homebuyer to buy that particular home. IPCs are allowed up to a certain dollar amount.
Who is considered an interested party? Your real estate agent, the home builder, and of course the home seller. Even funds from down payment assistance programs are considered IPCs if the funds originate from the seller and run through a non-profit.
Anyone who might benefit from the sale of the home is considered an interested party, and their contribution to the buyer is limited.
What are seller concessions?
Seller concessions are closing costs the seller has agreed to pay. These are also known as seller-paid costs, or sometimes as sales concessions or seller contributions. New and experienced homebuyers can get into homes faster with help from the seller.
In this article:
What are Seller Concessions, What are the Max Concessions on Conventional loan, FHA, VA, USDA
FAQ
What is the most seller concessions for a conventional loan?
What is the most seller can pay in closing costs?
What is the maximum seller contribution Fannie Mae?
What is the maximum seller concessions on Freddie Mac?
What is a seller concession limit on a home loan?
Here are some common types of loans and their associated seller concession limits: Seller concession limits for conventional loans typically range from 3% to 6% of the home’s purchase price. However, the limit varies based on factors such as the buyer’s down payment and the loan-to-value ratio.
What is a seller concession on a conventional loan?
A ‘seller concession’ refers to any arrangement where closing costs on a home purchase are paid by the seller rather than the buyer. What is the maximum seller concession on a conventional loan? If your down payment is less than 10%, the maximum seller contribution is 3%.
What are the concession limits for conventional loans?
Concession limits for conventional loans depend on the buyer’s down payment: For down payments of less than 10%, concessions are capped at 3% of the purchase price. For down payments between 10% and 25%, concessions are capped at 6% of the purchase price. For down payments of more than 25%, concessions are capped at 9% of the purchase price.
How much can a seller contribute to a conventional loan?
The limit for conventional loans depends on how much you’re putting down: If your down payment is less than 10%, the seller can contribute up to 3%. If your down payment is 10% – 25%, the seller can contribute up to 6%. If your down payment is more than 25%, the seller can contribute up to 9%.