To calculate seller concessions, multiply the applicable property value by the percentage cap your loan program allows. For a $300,000 FHA purchase, that’s $300,000 × 0.06 = $18,000. The percentage runs from 2% to 9% depending on the loan type and, for conventional loans, the size of the down payment. Getting the right cap is where the real work sits; the arithmetic itself takes seconds.
The Formula
Maximum Seller Concession = Property Value × Applicable Percentage Limit
Which number counts as “property value” depends on the program. For conventional loans backed by Fannie Mae or Freddie Mac, it’s the lower of the sales price or the appraised value, not the loan amount.1Fannie Mae. Interested Party Contributions (IPCs) For FHA, USDA, and VA loans, the baseline is the sales price (with a wrinkle for VA covered below).2U.S. Department of Housing and Urban Development. What Costs Can a Seller or Other Interested Party Pay on Behalf of the Borrower
Once you know the correct baseline and the correct percentage, plug them in and you have your ceiling.
Percentage Caps by Loan Type
Conventional Loans
Fannie Mae ties the cap to the loan-to-value ratio, which moves inversely with the down payment:1Fannie Mae. Interested Party Contributions (IPCs)
- Down payment under 10%: 3% of property value
- Down payment of 10% to 24.99%: 6%
- Down payment of 25% or more: 9%
- Investment properties: 2%, regardless of down payment
A buyer putting 5% down on a $400,000 home gets a maximum of $12,000 ($400,000 × 0.03). At 15% down on the same home, the ceiling jumps to $24,000 ($400,000 × 0.06).
Costs the seller normally pays by local custom, such as real estate commissions, don’t count toward the cap.3Fannie Mae. Selling Notice Only contributions toward the buyer’s costs get measured against the limit.
FHA Loans
FHA allows a flat 6% of the sales price, no matter what the buyer puts down.2U.S. Department of Housing and Urban Development. What Costs Can a Seller or Other Interested Party Pay on Behalf of the Borrower On a $250,000 purchase, that’s up to $15,000 toward origination fees, closing costs, prepaid items, and discount points. Anything above 6% triggers a dollar-for-dollar reduction of the property’s value for mortgage calculation purposes, effectively shrinking the loan the buyer qualifies for.4FHA.com. FHA Seller Concession Rules and the Six Percent Limit
VA Loans
VA works differently, and this is where most calculations go wrong. The seller can pay all of the buyer’s normal closing costs with no dollar limit. Origination fees, the VA appraisal, title insurance, prorated property taxes, and attorney fees all sit outside the concession cap.
The 4% cap applies only to items beyond standard closing costs:
- Paying off the buyer’s debts (credit cards, auto loans) to help them qualify
- The VA funding fee paid on the buyer’s behalf
- Permanent or temporary interest rate buydowns
- Prepaid taxes and insurance beyond the prorated closing amount
- Gifts to the buyer such as appliances or furniture
The VA calculates its 4% against the loan amount, not the sales price. With zero down those numbers are identical, but any down payment shrinks the loan and shrinks the cap along with it.
USDA Loans
USDA Rural Development loans cap seller contributions at 6% of the sales price.5USDA Rural Development. HB-1-3555 – Chapter 6: Loan Purposes Eligible items include loan acquisition expenses, lender fees, reasonable closing costs, prepaid items, prorated taxes, and utility connection fees. The USDA’s upfront guarantee fee and lender premium pricing don’t count against the 6%.6USDA Rural Development. Loan Purposes and Restrictions
USDA concessions cannot pay the buyer’s personal debts or fold movable personal property (furniture, electronics, cars) into the deal.5USDA Rural Development. HB-1-3555 – Chapter 6: Loan Purposes
What the Concession Can and Cannot Cover
Concessions can generally go toward legitimate buyer closing expenses: appraisal fees, title insurance, loan origination fees, inspection costs, recording charges, prepaid property taxes, homeowner’s insurance premiums, and discount points.7National Association of REALTORS®. Seller Concessions: A Guide for REALTORS
They cannot go toward the buyer’s down payment, financial reserve requirements, or minimum borrower contribution on conventional loans. Fannie Mae also counts furniture, automobiles, decorator allowances, moving costs, and similar giveaways as “sales concessions” that eat into the IPC limit.1Fannie Mae. Interested Party Contributions (IPCs) Undisclosed contributions of any kind are prohibited.
When the Cap Exceeds Your Actual Closing Costs
The percentage is a ceiling, not a payout. If a $300,000 FHA purchase allows up to $18,000 but the buyer’s actual costs total $11,000, the seller pays $11,000. The extra $7,000 doesn’t get handed over as cash, applied to the down payment, or refunded after closing.
If you realize the concession you negotiated will exceed real costs, ask your lender whether the surplus can go toward discount points to lower your rate. Points are a legitimate closing cost that absorb extra concession dollars and produce long-term savings. Otherwise the unused amount simply stays with the seller.
This is why a preliminary closing cost estimate from the lender belongs at the front of the negotiation, not the end. Asking for 6% when your costs run 2% doesn’t help you and makes the offer less appealing to the seller for no reason.
How the Appraisal Changes the Math on Conventional Loans
Because the conventional cap runs against the lower of sales price or appraised value, a low appraisal shrinks the ceiling.1Fannie Mae. Interested Party Contributions (IPCs) Say you agree to buy at $325,000 with 5% down (a 3% cap) and negotiate $9,750 in concessions. The appraisal returns $310,000. Your cap is now $310,000 × 0.03 = $9,300. You’ve lost $450 of negotiated concessions and need to cover the gap yourself at closing.
Putting the Number in the Contract
Write the concession into the purchase agreement as a specific dollar figure, not a percentage. A flat number keeps the title company, the lender, and both agents on the same page. “Seller to contribute 3% toward buyer’s closing costs” recalculates every time the price shifts after inspection, which invites confusion at exactly the wrong moment.
The lender verifies the concession against program limits during underwriting. A number over the cap gets flagged and the contract has to be amended before the loan can close. On the closing disclosure, concessions appear as a credit to the buyer that reduces cash-to-close. Compare that line against the purchase agreement; mismatches between the two documents are a common source of last-minute closing delays.