No, a seller cannot pay your down payment on a conventional, FHA, VA, or USDA mortgage. Lenders treat any money the seller puts toward your down payment as an artificial price cut, not real buyer equity, and they subtract it dollar-for-dollar from the sale price before sizing your loan.1Every CRS Report. Treatment of Seller-Funded Downpayment Assistance in FHA-Insured Home Loans What the seller can do is cover a large share of your closing costs, and depending on your loan type and down payment size, that contribution ranges from 2% to 9% of the sale price. Freeing up that cash is often the practical equivalent of down payment help.
Why the Down Payment Has to Be Yours
The down payment exists so you have your own money at risk in the home. If the seller supplies those funds, you begin the loan with zero personal investment, and default rates climb sharply when that happens. Federal law now bars any contribution toward a borrower’s minimum required investment from the seller or from any party the seller reimburses, which closed off the old workaround of routing “gifts” through nonprofits funded by sellers after closing.1Every CRS Report. Treatment of Seller-Funded Downpayment Assistance in FHA-Insured Home Loans
On a $300,000 purchase, a $15,000 seller-funded down payment would push the lender to treat the true price as $285,000. Your maximum insurable loan shrinks accordingly, and you end up covering the gap yourself. The rule is designed to make that math unavoidable.
Acceptable down payment sources are your own savings, a gift from a family member or someone with a documented close relationship, or a legitimate grant. Fannie Mae permits gift funds to cover the entire down payment on a one-unit primary residence, but gifts from anyone with a financial stake in the sale (the seller, the listing agent, the builder) are prohibited.2Fannie Mae. B3-4.3-04, Personal Gifts
What the Seller Can Pay: Closing Cost Concessions
Sellers routinely agree to pay part of the buyer’s closing costs. These concessions are negotiated in the purchase contract, listed on the Closing Disclosure, and deducted from the seller’s proceeds at settlement. The money never touches your hands. Eligible items include title insurance, loan origination fees, the appraisal fee, prepaid property taxes, prepaid mortgage interest, recording fees, and discount points.
The effect is indirect but real: every dollar the seller covers at closing is a dollar of your savings that stays available for the down payment. That is the practical answer for most buyers who arrive at this question.
Concession Limits by Loan Type
Every loan program caps how much the seller can contribute. Exceeding the cap either shrinks your approved loan or blows up the deal, so know the ceiling before you negotiate.
Conventional Loans (Fannie Mae and Freddie Mac)
The cap scales with how much you put down:
- Less than 10% down: seller concessions capped at 3% of the sale price or appraised value
- 10% to 25% down: cap rises to 6%
- 25% or more down: cap reaches 9%
- Investment properties: flat 2% ceiling regardless of down payment
Freddie Mac uses the same tiers.3Fannie Mae. href=”https://selling-guide.fanniemae.com/sel/b3-4.1-02/interested-party-contributions-ipcs” target=”_blank” rel=”noopener”>Interested Party Contributions (IPCs)4Freddie Mac. Guide Section 5501.6 Anything over the limit is treated as a sale price reduction for underwriting, which cuts your approved loan amount.
FHA Loans
FHA permits seller concessions up to 6% of the sale price or appraised value, whichever is lower, regardless of down payment size. The money can go toward origination fees, closing costs, prepaids, discount points, the upfront mortgage insurance premium, and rate buydowns.5Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1
Anything above 6%, or spent on something outside those eligible categories, is classified as an inducement to purchase. HUD then reduces the property’s adjusted value dollar-for-dollar before applying the 96.5% loan-to-value ratio, so you end up needing more cash, not less.6Federal Register. Federal Housing Administration (FHA) Risk Management Initiatives: Revised Seller Concessions FHA concessions also cannot be used toward your 3.5% minimum required investment.5Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1
VA Loans
VA rules split seller contributions into two buckets. Standard closing costs (title fees, escrow, recording, and even permanent discount points) do not count toward any cap. The seller can pay all of those without restriction.7Veterans Benefits Administration. VA Home Loan Guaranty Buyer’s Guide
The 4% cap applies only to items the VA specifically calls concessions: paying off your credit cards or other debts to help you qualify, covering lease buyouts, funding temporary rate buydowns, and prepaying months of mortgage payments on your behalf. Those extras must stay at or under 4% of the sale price.7Veterans Benefits Administration. VA Home Loan Guaranty Buyer’s Guide
USDA Loans
USDA rural housing loans cap total seller contributions at 6% of the sale price. The money has to go toward eligible closing costs. It cannot pay off your personal debts, and the seller cannot throw in furniture, electronics, or other personal property as an incentive. If the seller’s contribution exceeds your actual closing costs, the excess is applied as a principal reduction rather than refunded.8USDA Rural Development. HB-1-3555 – Chapter 6: Loan Purposes
Using a Concession to Buy Down Your Rate
Rather than spending the seller’s contribution on prepaid taxes and title fees, you can direct it toward reducing your mortgage rate. A temporary buydown, structured as a 2-1 or 3-2-1 plan, drops your rate by up to 3 percentage points the first year, with the discount shrinking by 1 point each year until the permanent note rate takes over. Fannie Mae requires the buydown funds to sit in a fully funded custodial account and requires you to qualify at the full note rate, not the temporary one. Seller-funded buydowns count toward the concession cap.9Fannie Mae. Temporary Interest Rate Buydowns
Permanent discount points work differently. Each point usually costs 1% of the loan amount and cuts the rate for the life of the loan. Seller-paid points count against the concession cap on conventional and FHA loans. On VA loans, permanent discount points fall outside the 4% cap and are treated as an ordinary closing cost the seller can pay without limit.
Where Down Payment Help Actually Comes From
Since the seller is not an option, real down payment help comes from three sources. First, a documented gift from a family member or someone with a close personal relationship, on a conventional loan that gift can cover the entire down payment on a primary residence.2Fannie Mae. B3-4.3-04, Personal Gifts
Second, state and local housing finance agencies run down payment assistance programs offering grants, forgivable loans, or low-interest second mortgages. Eligibility typically turns on income limits, first-time buyer status (often defined as not having owned a home in the past three years), and buying in a qualifying area. These funds count as an acceptable down payment source under Fannie Mae, Freddie Mac, and FHA rules and can layer on top of your primary mortgage. A HUD-approved housing counseling agency or your lender can identify programs in your area.
Third, your own savings, the source lenders trust most. Every other program is designed to supplement it, not replace it.
The Exception: Seller Carryback Financing
Seller carryback financing is the one setup where the concession rules above do not apply. The seller becomes your lender. You sign a promissory note and give the seller a lien on the property (a mortgage or deed of trust, depending on the state), then pay the seller directly over time.
Because no bank or federal agency is underwriting the deal, Fannie Mae, FHA, and VA caps are irrelevant. The seller can accept a small down payment, no down payment, or finance the full purchase price. Interest rates and repayment terms are negotiable, subject only to state usury ceilings. The tradeoff is real: you lose the consumer protections that come with a federally regulated mortgage, and the seller takes on default risk.
Why You Cannot Just Hide It
Every dollar the seller contributes has to appear in the purchase agreement or a signed amendment and on the Closing Disclosure. Lenders check those figures against the program’s concession cap before funding.
Side deals that route money back to the buyer, inflated contract prices that build in a hidden rebate, or cash payments outside the closing process are federal mortgage fraud. Knowingly making a false statement to influence a federally insured lender carries a fine of up to $1,000,000 and up to 30 years in prison.10Office of the Law Revision Counsel. 18 U.S. Code 1014 – Loan and Credit Applications Generally Actual sentences run far below the maximum, but federal prosecutors bring these cases regularly, and a conviction is a permanent felony record. No concession is worth that.