No. Seller credits cannot be used for a down payment on any major mortgage program. Fannie Mae, Freddie Mac, FHA, VA, and USDA all require the down payment to come from your own funds or an approved source such as a documented family gift, never from the seller. What seller credits can do is cover most of your closing costs, which frees up more of your own cash to put toward the down payment itself.
Why the Down Payment Rule Exists
Fannie Mae’s Selling Guide puts the rule plainly: interested party contributions, which include seller credits, cannot “be used to make the borrower’s down payment, meet financial reserve requirements, or meet minimum borrower contribution requirements.”1Fannie Mae. Interested Party Contributions (IPCs) Freddie Mac applies the same restriction. FHA requires the 3.5 percent minimum down payment to come from the borrower’s own verified funds. VA and USDA follow similar principles even where they allow zero-down financing.
Lenders want you to have your own money at risk. A borrower with personal savings in the deal is statistically less likely to walk away from the mortgage. If the seller could hand you the down payment through a credit, you would have no equity on day one and the lender would carry all the risk.
Verification is routine. Lenders check bank statements and documentation for any gifts to confirm the source of your down payment funds.
What Seller Credits Can Actually Pay For
The down payment is off-limits, but almost everything else at the closing table is fair game. Closing costs commonly run one to three percent of the purchase price, and shifting those to the seller keeps cash in your pocket. Credits can generally go toward:
- Loan origination fees, often around one percent of the loan amount
- Appraisal fees, typically $300 to $500 for a standard single-family home
- Owner’s and lender’s title insurance and title search fees
- Attorney and settlement fees
- Recording fees charged by the local government
- Prepaid items such as property tax escrow deposits, homeowner’s insurance premiums, and prepaid mortgage interest through the end of the closing month
- A one-year home warranty covering major systems and appliances
One of the most valuable uses is buying down your interest rate. Each discount point costs one percent of the loan amount and typically lowers your rate by about 0.25 percent. A seller credit covering two points on a $400,000 loan would run $8,000 at closing and can save significantly more over the life of the mortgage. Fannie Mae allows seller-funded buydowns, including temporary 2-1 buydowns that cut your rate by two percentage points in year one and one point in year two, though these dollars count toward the concession caps below.2Fannie Mae. Temporary Interest Rate Buydowns
How Much the Seller Can Credit You
Each loan program caps the total credit as a percentage of the sale price or appraised value, whichever is lower. Blow past the cap and you don’t just lose the extra money. The excess can trigger an underwriting adjustment that lowers the property’s value for loan purposes, which can derail approval.
Conventional Loans
Conventional caps scale with your down payment:1Fannie Mae. Interested Party Contributions (IPCs)
- Less than 10 percent down (LTV above 90 percent): capped at 3 percent
- 10 to 24.99 percent down (LTV between 75.01 and 90 percent): capped at 6 percent
- 25 percent or more down (LTV at or below 75 percent): capped at 9 percent
On a $400,000 home with 5 percent down, the seller could contribute no more than $12,000 toward closing costs. Raise your down payment to 10 percent and that cap doubles to $24,000.
FHA Loans
FHA allows seller concessions up to 6 percent of the sale price. Anything above that is treated as an inducement to purchase and reduces the mortgage amount FHA will insure.3U.S. Department of Housing and Urban Development. Seller Concessions and Verification of Sales Since FHA buyers typically put down 3.5 percent, 6 percent usually covers closing costs comfortably.
VA Loans
VA loans draw a distinction between closing costs and concessions. The seller can pay all of your normal closing costs — origination fees, appraisal, title, recording — with no percentage cap. A separate 4 percent limit applies only to concessions, which the VA defines as extras beyond standard closing costs: the VA funding fee, paying off your debts, or prepaying your hazard insurance.4Veterans Affairs. VA Funding Fee and Loan Closing Costs The 4 percent is calculated from the reasonable value in the VA Notice of Value, not the sale price.
USDA Loans
USDA Rural Development loans cap seller contributions at 6 percent of the sale price. The credit must fund eligible loan purposes, and fees the seller typically pays anyway, like the real estate commission, don’t count toward the 6 percent.5USDA Rural Development. Loan Purposes and Restrictions
Investment Properties: A Much Tighter Cap
If the home isn’t your primary residence, the rules get stricter fast. Fannie Mae limits interested party contributions on investment properties to just 2 percent of the lower of the sale price or appraised value, regardless of your down payment.1Fannie Mae. Interested Party Contributions (IPCs) On a $300,000 rental, that’s a maximum $6,000 credit, which may not cover all your closing costs. Budget to pay most of them yourself.
What Happens If the Credit Is Too Big
Two different problems come up with oversized credits, with different fixes.
When a credit exceeds the program’s percentage cap, Fannie Mae treats the excess as a sales concession and deducts it from the property value used for underwriting.6Fannie Mae. DU Job Aids – Excess Interested Party Contributions That lowers the appraised value used to calculate your loan-to-value ratio, and you may need a larger down payment to qualify.
When a credit sits within the cap but exceeds your actual closing costs, the surplus cannot be paid to you as cash. Caught before loan documents are finalized, the usual fix is to reduce both the purchase price and the credit by the same amount. Caught later, the unused portion typically reverts to the seller. Leftover credit money never lands in your pocket, which is the whole point of the rule.
Why “Cash-Back” Workarounds Are Fraud
Some buyers and sellers try to route money back to the buyer by inflating the purchase price and quietly returning the difference. This is mortgage fraud. In one case prosecuted after a Financial Crimes Enforcement Network investigation, defendants inflated home prices and concealed credits ranging from $42,000 to over $137,000 per transaction, causing losses exceeding $2.5 million. They were convicted of mail fraud and financial structuring violations.7Financial Crimes Enforcement Network. Proactive Suspicious Activity Report Review Leads to Indictments in Cash Back Mortgage Fraud Scheme
Lower-key versions carry the same legal exposure. A side agreement to reimburse you after closing, or a credit that quietly runs beyond actual costs, can lead to loan denial, mortgage rescission, or federal fraud charges. Lenders specifically watch for inflated prices against comparable sales and unexplained line items on the settlement statement.
Getting the Credit Into Your Contract
A seller credit only works if the purchase agreement spells it out. The contract should state the exact dollar amount or percentage the seller will contribute and what the credit covers, whether general closing costs, specific repairs, or a rate buydown. Vague wording slows underwriting because the lender has to confirm the credit fits within the program’s limits.
Your lender reviews the signed contract to verify the credit stays within both the program cap and your estimated closing costs. Once approved, it appears as a line-item adjustment on your Closing Disclosure, the five-page form you receive at least three business days before closing. If the amount changes mid-deal, say after an inspection surfaces repairs, you’ll need a signed addendum so the lender can re-verify compliance.
The bottom line for anyone counting on seller help: the credit won’t fund your down payment, but a well-structured credit covering closing costs, prepaid items, and a rate buydown can be worth tens of thousands of dollars and leave more of your own cash available for the down payment you still have to bring yourself.