A seller concession is money the seller agrees to put toward the buyer's closing costs and prepaid items at settlement. The amount is written into the purchase contract, shows up as a credit on the Closing Disclosure, and reduces the cash you bring to the table. Each loan program sets its own ceiling on how much a seller can contribute, and the limit is measured against the property value, not the loan amount. Exceed it, and the underwriter has to adjust the sales price before approving the loan.
Seller Concessions Are a Credit Toward Your Closing Costs
The concession is negotiated before the contract is signed, usually as a percentage of the purchase price or a fixed dollar figure. At closing, the title or settlement agent applies that credit against the fees on your side of the Closing Disclosure. The seller's net proceeds drop by the same amount.
The credit can pay for lender fees, title charges, recording fees, discount points, and prepaid items such as the first year of homeowners insurance or interest due before your first payment. Fannie Mae also allows a seller credit to cover HOA dues for up to 12 months after closing on a conventional loan.
What a concession cannot do is fund your down payment. Fannie Mae, FHA, and VA all treat the borrower's minimum contribution as something that has to come from your own funds, a gift, or another approved source. A seller credit that exceeds your actual closing costs does not get refunded to you in cash, either. The leftover amount is treated as a reduction in the sales price.
Conventional Loans Cap Concessions by Loan-to-Value Ratio
Fannie Mae calls seller credits interested party contributions, and the limit depends on how much you are putting down. For a primary residence or second home, the Selling Guide sets the maximum at:
- 3% of the price or appraised value when the loan-to-value ratio is above 90%
- 6% when the loan-to-value ratio is between 75.01% and 90%
- 9% when the loan-to-value ratio is 75% or lower
Investment properties are limited to 2% regardless of the down payment. The percentage is calculated on the lower of the sales price or appraised value, so a low appraisal can shrink the allowable credit even if the contract number did not change.
Fees the seller customarily pays in your market, such as the Florida documentary stamp tax on the deed, are not counted against these limits. The cap applies to costs that would normally land on the buyer's side of the ledger.
Freddie Mac follows a similar structure, though individual lenders can apply their own overlays. The loan-to-value tier is set by the down payment you choose, not by the seller.
FHA Allows Up to 6% for Closing Costs and Prepaids
HUD Handbook 4000.1 allows interested parties, including the seller, builder, or real estate agent, to contribute up to 6% of the sales price toward origination fees, other closing costs, discount points, and prepaid items. The 6% figure also absorbs any seller-paid interest rate buydown, so a temporary buydown funded by the seller counts against the same cap as the title fees.
The limit is the same no matter how much you put down. FHA does not raise it for larger down payments the way Fannie Mae does.
Two rules in the FHA handbook catch buyers off guard. First, contributions cannot be applied to the 3.5% minimum required investment. Second, any contribution above 6%, or above your actual closing costs, is treated as an inducement to purchase and is subtracted from the sales price before the loan amount is calculated. That recalculation can lower the maximum loan and increase the cash you need to close.
The credit can cover the upfront mortgage insurance premium only if it fits inside the 6% ceiling alongside everything else.
VA Loans Separate Closing Cost Credits From Concessions
VA rules split seller contributions into two buckets, and only one of them is capped. A seller can pay any amount of the buyer's standard closing costs, including title fees, recording charges, and the lender's origination fee, without hitting a VA limit.
Separately, VA caps what it defines as concessions at 4% of the reasonable value established by the VA appraisal. Concessions are items that go beyond ordinary closing costs. Under VA Pamphlet 26-7, that category includes:
- Payment of the VA funding fee on the borrower's behalf
- Prepaid property taxes and homeowners insurance
- Payoff of the buyer's credit card balances or other debts
A seller paying all of your closing costs and also covering the funding fee is allowed, as long as the funding fee and any other concessions stay under the 4% line. If the total goes over, the loan does not meet VA guaranty requirements as written and the contract has to be restructured. Individual lenders may also set their own tighter limits, so confirm the structure with your loan officer before the offer goes out.
Jumbo Loans Follow the Investor's Own Rules
Jumbo loans are not sold to Fannie Mae or Freddie Mac, so the agency contribution tables do not apply. Each jumbo investor publishes its own limit, and the figures vary. Some mirror the conventional tiers. Others set a flat percentage that does not change with the down payment.
A large credit on a jumbo purchase can draw scrutiny from the appraiser if it looks like it is propping up the sales price. Ask your loan officer which investor is likely to buy the loan and what that investor allows before you write the concession into the contract.
Seller Credits Affect the Appraisal and the Loan Amount
Lenders are required to give the appraiser the full terms of the contract, including any seller contributions. The appraiser considers whether the credit influenced the agreed price. If comparable sales in the neighborhood did not include similar credits, the appraiser may adjust, and the appraised value can come in below the contract figure.
When a concession exceeds the program limit or the buyer's actual costs, the overage is deducted from the sales price for underwriting purposes. The loan-to-value ratio is then recalculated on the reduced figure. On a conventional loan, that can push the ratio into a higher mortgage insurance tier or change the pricing. On an FHA loan, it can lower the maximum insurable amount.
The cleanest way to structure a concession is to ask your loan officer for an estimate of total closing costs and prepaids before the offer is written, then negotiate a credit that lands at or slightly below that number. A credit sized to the actual costs avoids the price adjustment entirely.
How Edge Mortgage USA Approaches Seller Credits
Edge Mortgage USA originates conventional, FHA, VA, and jumbo purchase loans across Orlando and Central Florida. Before a buyer submits an offer, the loan officer can run the closing cost figures for the specific property, including the Florida documentary stamp and intangible taxes, so the seller credit in the contract is sized to what the file will actually show. When a concession comes in above the program limit, Edge Mortgage USA explains how the sales price adjustment works and what it does to the loan amount, rather than leaving the buyer to find out at the Closing Disclosure stage. The lender cannot change what Fannie Mae, HUD, or VA allow, but it can make sure the contract is written in a way that fits those rules from the start.
Ready to make an offer in Central Florida? We can price out your closing costs and tell you how much seller credit makes sense for your FHA loan, VA loan, or jumbo loan before you negotiate. Start with the purchase process or run the numbers on the affordability calculator, then contact us to get pre-approved.
This article is for educational purposes only and does not constitute financial, legal, or lending advice. Loan program guidelines change, and individual lenders may apply additional requirements. Speak with a licensed loan officer about your specific situation.
