Closing costs can be a huge, unexpected expense when purchasing a home. Think $8,000 to $10,000 or more on a typical purchase.
But current mortgage rules allow sellers and other parties to pay all or part of your closing costs.
Here’s how much you're able to receive, the other interested parties who might contribute to your closing costs, and how to get the maximum seller concession possible.
Conventional Loan Seller Concession Maximums
Seller concessions, also known as seller-paid closing costs or seller credits, are grouped in with other types of closing assistance called Interested Party Contributions, or IPCs.
IPCs are any funds issued to the buyer from a party that stands to gain from the transaction. This can include:
Seller
Builder
Developer
Real estate agent
An organization with co-ownership of any of the above
Interestingly, the lender is not considered an interested party and may give you a closing cost credit from its profit margin without affecting IPC maximums.
Conventional loan seller concession limits are determined by the size of your down payment, with borrowers putting larger amounts down eligible to receive more in Interested Party Contributions.
According to Fannie Mae, total seller concessions plus any other IPCs must not exceed the following:
Down Payment | Primary Residence IPC | Second Home IPC | Investment Property IPC |
3-9.99% | 3% | 3% | 2% |
10-24.99% | 6% | 6% | 2% |
25%+ | 9% | 9% | 2% |
The above percentages are based on the home price. For example, you could receive up to $9,000 (3%) in seller concessions for a $300,000 home, even when only putting 3% down.
Keep in mind that the above only applies to conventional loans underwritten by Fannie Mae and Freddie Mac rules.
Maximum seller concessions for other types of mortgages are as follows:
FHA loans: 6%
VA loans: All normal closing costs plus an additional 4%
USDA loans: 6%
If for some reason you receive more seller concessions than conventional loans allow, you might consider changing a different loan type.
What Can Seller Concessions Be Used For?
You can use seller concessions and other IPCs toward:
Loan closing costs like title, escrow, and appraisal charges
Items the lender requires you to prepay like property taxes and homeowner’s insurance
Loan origination points
Discount points
Up to 12 months of HOA dues
Most other costs of getting a mortgage
Lenders do not allow you to use interested party contributions toward your down payment, financial reserves, or to meet minimum contribution rules for the loan. You also may not receive cash back at closing unless it’s a refund of your earnest money.
However, IPCs can indirectly help you qualify for the loan. For example, you have $10,000 in savings. The down payment requirement is $9,000 and closing costs are another $9,000, for a total of $18,000 required to close. A seller credit of $9,000 would lower your cash requirement enough to qualify.
If the Seller Pays the Buyer Agent's Commission, Does That Count Toward IPC Maximums?
A 2024 settlement with the National Association of Realtors reversed the long-standing rule that the seller must pay the buyer's real estate agent commission. If the seller chooses to pay the commission, does that count toward maximum concessions?
The answer is no. Fannie Mae released a statement clarifying that customary seller payments to the buyer's agent do not count toward IPC maximums.
For example, the buyer is putting 5% down. At this down payment level, they are eligible for up to 3% in seller concessions. The seller agrees to 2% toward closing costs and another 3% to pay for the buyer's agent commission.
This scenario would be acceptable because the official seller concession is just 2% in this case, below the 3% maximum.
Undisclosed IPCs
Beware of contributions that are not disclosed to the lender. One extreme example is if the seller “accidentally” leaves a 1966 Ford Mustang in the garage when he moves out as an added bonus for buying the home. In reality, it’s an undisclosed contribution that could make the loan due and payable.
Other examples are undisclosed second mortgages from the seller, covering moving expenses, or any other item of value meant to entice you to buy the home. It’s best to steer clear of these offers.
Can Sellers Contribute More Than My Actual Closing Costs?
Seller concessions are limited to the actual amount of your closing costs, including prepaid expenses due at closing, such as property taxes and HOA dues (for up to 12 months) when taking out a conventional loan.
You cannot use Interested Party Contributions, such as seller concessions, as part of your down payment, or receive any excess funds back in the form of cash.
What if I Have Too Much in Seller Concessions?
It’s a good problem to have: the seller is willing to give you more than your closing cost total.
But while you're only eligible to receive contributions up to your actual closing costs, there is a practical solution: lower your interest rate.
A rate reduction will require higher discount and origination charges. These will eat up any excess seller concessions.
Another solution is to ask the seller to reduce the purchase price in lieu of a larger credit. For example, the seller offers $15,000 in closing cost credits on a $300,000 home. Your closing costs are only $10,000. You could ask for $10,000 in seller concessions and a new price of $295,000.
Related: Mortgage discount points: when should you buy them?
How to Get Seller Concessions
Your ability to get seller concessions largely depends on the local housing market and the home itself.
Homes that sit on the market a long time are good candidates for seller concessions. The seller may be desperate to offload the property. Likewise, sellers may offer concessions in markets where there are more homes than buyers.
Leveraging the home inspection is a great way to get seller funds. Many sellers don’t want to do repairs when they are discovered during the inspection. Some will give you a closing cost credit in lieu of the repair.
Your real estate agent knows best whether a seller might entertain a request for closing cost help.
One of the most significant advantages to a cooling real estate market is the increased ability to negotiate. Sellers are often more willing to accept offers below the asking price or agree to concessions, such as covering closing costs or making repairs.
Pros and Cons of Seller Concessions
Thinking about asking for seller concessions as part of your purchase offer? Here are some pros and cons to consider first.
| Pros | Cons |
|---|---|
| Reduces the total amount of cash needed to close | Requesting concessions make offers less competitive against other buyers not asking for concessions or a price reduction |
| Allows you to save funds in reserve or for other household expenses | Seller concessions are often accompanied by a higher purchase price, which can increase your loan amount |
| Asking for concessions is often more appealing to sellers than a price reduction | Offering a higher purchase price to receive concessions may lead to a low appraisal |
| Can be used to buy down your interest rate and lower your monthly payments | Conventional loan seller concessions are capped by down payment and are lower than other loan types with under 10% down |
An Alternative to Seller Concessions: Closing Cost Assistance
Sometimes, it’s not practical to obtain seller concessions. This often happens in a hot market, where sellers have more control, or in cooler markets with desirable properties that are likely to attract multiple buyers and sell quickly.
Or perhaps you’ve hit the conventional loan seller concessions maximum for your down payment size and still need additional funds to cover the rest of your closing expenses.
There is another option: closing cost assistance programs.
Even better news? These programs are often referred to as down payment assistance programs because they can be used for both your closing costs and to help with your down payment needs.
These funds can come in the form of grants, forgivable loans, or second mortgages with or without monthly payments.
What are some of the best places to find closing cost assistance/down payment assistance programs?
- State housing finance agencies (HFAs)
- Local government agencies (county and municipal)
- Community-based nonprofit organizations
- Local financial institutions
- Native American tribal agencies
Seller Concessions Can Help You Afford a Home
Upfront costs of buying a home can be insurmountable, especially as closing costs increase with rising property prices and inflation.
Thankfully, conventional lending guidelines allow you to receive as much as 9% of the sales price as an Interested Party Contribution when purchasing your primary residence, based on the size of your down payment. Buyers putting less than 10% down are eligible to receive up to 3% in seller concessions on conventional loans.
Getting help from the seller to reduce or eliminate your closing cost bill could help you finally buy a home.
