How Much Can a Seller Contribute on a Conventional Loan?

Seller contributions on a conventional loan are capped at 2% to 9% of the lower of the sale price or the appraised value, with the exact ceiling tied to your down payment and the type of property you’re buying. Fannie Mae and Freddie Mac set the same tiered limits: the more you put down on a primary residence or second home, the more the seller is allowed to kick in toward your closing costs. Investment properties sit outside the tiers and face a flat 2% cap no matter how much equity you bring.

The Caps by Down Payment and Property Type

For a primary residence or second home, the maximum interested party contribution climbs as your loan-to-value ratio drops:

Less than 10% down (LTV above 90%): up to 3%.
10% to 24.99% down (LTV between 75.01% and 90%): up to 6%.
25% or more down (LTV of 75% or less): up to 9%.

Second homes follow the same schedule as primary residences.¹ Freddie Mac mirrors these limits in its own seller guide.²

Investment properties are different. The cap is 2%, period. Even with 40% down on a rental, the seller cannot contribute more than 2% of the property’s value.¹

How the Dollar Amount Is Calculated

The cap is applied to the lower of the sale price or the appraised value, not the loan amount.¹ When the appraisal comes in at or above the contract price, the math is simple. On a $400,000 home with 5% down, your 3% cap works out to $12,000.

A low appraisal changes the picture. If you agreed to pay $400,000 but the appraiser values the home at $380,000, the 3% is calculated on $380,000, cutting the maximum from $12,000 to $11,400. The lower value also raises your effective LTV, which can force a price renegotiation or more cash at closing. Build that risk into any concession you negotiate.

What the Credit Can Pay For

Seller credits are limited to actual closing costs and prepaid items. Common examples include loan origination fees, the appraisal fee, title insurance, title search and recording fees, and inspection costs. Prepaids such as the initial escrow deposit for property taxes and homeowners insurance qualify, and HOA assessments covering up to 12 months after closing can be included.¹

Rate buydowns are one of the more useful ways to spend a seller credit. Both permanent discount points and temporary buydown plans count as financing concessions and apply against your cap.¹ Temporary buydowns cannot last more than three years, and the rate can step up by no more than 1% per year. One wrinkle: the lender qualifies you at the full note rate, not the reduced buydown rate, so a buydown lowers your early payments without helping you qualify for a larger loan.³

What the Credit Cannot Pay For

Seller contributions cannot be applied to your down payment, your reserves, or any minimum borrower contribution your loan program requires. The down payment rule exists to keep real money of your own in the deal.¹

You also cannot pocket cash back. If the seller offers $10,000 and your actual closing costs come to $7,500, the extra $3,000 does not come to you. The excess is treated as a sales concession and deducted from the sale price, forcing the lender to recalculate LTV on the lower figure.¹ In practice, lenders simply trim the credit to match your real costs so everything lines up on the closing disclosure.

Personal property and non-realty incentives are handled separately. Furniture, appliances, moving-cost reimbursements, decorator allowances, and cash gifts outside closing do not count against the financing concession cap. Instead, their value is subtracted from the sale price before LTV is calculated.¹ A $5,000 furniture package on a $300,000 sale effectively makes the home a $295,000 property for lending purposes.

Who Counts as an Interested Party

The cap applies to more than the seller alone. Fannie Mae includes the seller, the builder or developer, real estate agents and brokers, their affiliates, and anyone else with a financial stake in closing the sale at the highest possible price.¹ If a builder throws in free upgrades and the seller also writes a closing-cost credit, the lender totals everything against the cap.

Buyer-agent commissions paid by the seller are a notable exception. Fannie Mae and Freddie Mac have both confirmed that because sellers have customarily paid the buyer’s agent, those payments stay outside the interested party contribution calculation.⁴ With more buyers negotiating seller-paid agent fees under recent commission changes, those fees won’t eat into your concession room for closing costs.

What Happens If the Seller Offers Too Much

Going over the cap doesn’t automatically kill the loan. The excess is reclassified as a sales concession and subtracted from the sale price. The lender then recomputes LTV and CLTV using the lower of the reduced sale price or the appraised value.¹ That shift can push you into a higher LTV tier, which may trigger mortgage insurance you weren’t planning on or disqualify the loan if it exceeds the product’s maximum LTV.

Undisclosed contributions are a different story. If the seller quietly pays your moving costs or hands over funds outside closing that never make it onto the settlement statement, the loan becomes ineligible for sale to Fannie Mae. Underwriters verify every credit, and anything hidden can unwind the deal after closing.¹

How This Compares to FHA and VA Loans

Conventional loans have the most layered concession rules because the cap moves with your down payment. If you’re still weighing loan types, the other two major options work differently.

FHA loans allow seller contributions of up to 6% of the sale price toward closing costs, regardless of down payment. With FHA’s 3.5% minimum down, that 6% is generous relative to most buyers’ actual closing costs.
VA loans let sellers pay all of the buyer’s allowable closing costs with no cap, plus concessions worth up to 4% of the appraised value for items like the VA funding fee, temporary buydowns, and prepaid expenses.

A buyer putting 5% down on a conventional loan has a 3% ceiling. The same buyer on an FHA loan has 6%. That gap matters in a market where sellers are willing to help with costs, though conventional loans avoid FHA’s upfront and ongoing mortgage insurance premiums, which can offset the smaller concession over the life of the loan.

1
Fannie Mae. Interested Party Contributions (IPCs)
2
Freddie Mac. Guide Section 5501.6
3
Fannie Mae. Temporary Interest Rate Buydowns
4
Freddie Mac. Guide Industry Letter 04-15-2024