Seller concession limits by loan type set a ceiling on how much a seller, builder, agent, or other interested party can credit toward your closing costs. Conventional loans allow between 2% and 9% depending on your down payment and whether the property is a primary home or investment. FHA and USDA cap contributions at 6%. VA loans work differently: there is no limit on standard closing costs a seller can cover, but items the VA classifies as “concessions” are capped at 4%. The percentages are measured against the lower of the sale price or appraised value for most programs, so the appraisal can shrink the cap after you’ve already agreed to terms.
Concession Caps at a Glance
- Conventional, under 10% down: 3% of the lesser of sale price or appraised value
- Conventional, 10% to 25% down: 6%
- Conventional, 25% or more down: 9%
- Conventional investment property, any LTV: 2%
- FHA: 6% of the lesser of sale price or appraised value
- VA standard closing costs: no cap
- VA concessions: 4% of the VA’s reasonable value
- USDA: 6% of the sale price
Conventional Loans: Caps Rise With Your Down Payment
Fannie Mae sets the ceiling on what it calls “financing concessions” based on your loan-to-value ratio and the type of property. If your down payment is under 10%, the cap is 3%. Between 10% and 25% down, it climbs to 6%. At 25% down or more, you can accept up to 9%. Investment properties are limited to 2% regardless of how much you put down.1Fannie Mae. Interested Party Contributions (IPCs)
Those percentages apply to the lower of the sale price or the appraised value. That distinction matters when an appraisal lands below your contract price, because the dollar cap drops with it.
Fannie Mae separates “financing concessions” from “sales concessions.” Financing concessions cover closing costs, prepaid items, and up to 12 months of HOA dues. Anything above the cap gets reclassified as a sales concession, as do non-realty extras like furniture, moving credits, or decorator allowances. Sales concessions are then subtracted from the sale price before the lender calculates loan-to-value, which can lower the amount you qualify to borrow.1Fannie Mae. Interested Party Contributions (IPCs)
Temporary rate buydowns funded by the seller count against the financing concession cap. The lender confirms the current market rate without points and measures the buydown cost against the applicable percentage.1Fannie Mae. Interested Party Contributions (IPCs) If you’re combining a buydown with other credits, make sure the total stays under your tier.
Freddie Mac uses a comparable framework with similar LTV-based tiers and the same split between financing and sales concessions.
FHA: A Flat 6% Cap
FHA loans allow the seller or any other interested party to contribute up to 6% of the lesser of the sale price or appraised value. The 6% is a combined total across everyone with a stake in the deal, not a per-party limit. Eligible uses include origination fees, discount points, title charges, the appraisal, and prepaid escrow deposits.
Go over the 6%, and FHA requires a dollar-for-dollar reduction in the sale price used to calculate the maximum mortgage. If the seller contributes $2,000 more than allowed on a $300,000 home, the lender recalculates as if the price were $298,000. The rule exists to stop buyers from rolling excess credits into an inflated purchase price and borrowing beyond the home’s value. Every concession has to appear on the settlement statement so HUD can verify compliance.
VA: Two Buckets, Only One Capped
VA loans split seller help into two categories, and only one has a cap. There is no VA-imposed limit on how much a seller can pay toward your standard closing costs. The 4% cap applies only to items the VA classifies as “concessions,” defined as anything of value added to the transaction beyond normal settlement charges.2Department of Veterans Affairs. VA Funding Fee and Loan Closing Costs
Standard closing costs the seller can pay without limit include:
- Loan origination fee
- Discount points and temporary buydown funds
- VA appraisal fee
- Credit report fees
- Title insurance
- Recording fees
- Hazard insurance and real estate tax escrows
Items that count as concessions against the 4% cap include credits toward the VA funding fee, payoff of your existing debts, and prepayment of hazard insurance beyond what’s required at closing.2Department of Veterans Affairs. VA Funding Fee and Loan Closing Costs The 4% is measured against the property’s “reasonable value” from the VA appraisal, not the contract price. In practice, a seller can cover all of your closing costs and still provide up to 4% in concessions on top of that.
If concessions exceed 4%, the excess must be deducted before the loan amount is calculated. Correct categorization on the settlement statement is critical, because a fee placed in the wrong bucket can push the concession total over the line and force last-minute changes.
USDA: 6% With Useful Exclusions
USDA Rural Development loans cap interested party contributions at 6% of the sale price. Funds go toward closing costs, prepaids, or in some cases a reduction of loan principal. Seller-funded repairs are allowed but must be held in escrow until the work is complete.3USDA Rural Development. HB-1-3555 – Chapter 6: Loan Purposes
Several items don’t count against the 6% cap: closing costs or prepaids the lender covers through premium pricing, funds the seller provides for repairs, and the buyer’s real estate commission fees paid by the seller. Those exclusions can push the effective contribution well above 6% in practice.3USDA Rural Development. HB-1-3555 – Chapter 6: Loan Purposes
USDA prohibits using seller contributions to pay personal debts or to include personal property like furniture, cars, or electronics in the deal. Standard household appliances are the exception. Since USDA loans require zero down, the combination of a 6% cap and generous exclusions gives rural buyers real help with upfront costs, but every dollar still has to trace to a legitimate closing expense.
What Concessions Can and Cannot Pay For
Concessions cover the fees and prepaid costs that come with closing a mortgage. Typical eligible items include the loan origination fee (usually 0.5% to 1% of the loan amount), the appraisal, credit report fees, title insurance, and recording fees charged by local government offices.4Legal Information Institute. Origination Fee You can also apply them to prepaid items like the first homeowner’s insurance premium, property tax escrow deposits, and discount points that buy down your rate. Attorney fees for document preparation or closing services qualify as well. Each credit appears on the Closing Disclosure and reduces the cash you owe at the table.
No loan program lets concession funds come back to you as cash. If the seller agrees to 6% but your actual closing costs only reach 4%, the extra 2% isn’t a rebate check. Some programs allow leftover funds to pay down principal, but you never pocket the difference. Seller money also can’t go toward personal debt in most programs, and bundling personal property like furniture, boats, or electronics into the deal will trigger a reduction in the loan amount. Built-in appliances like refrigerators, dishwashers, and washers are considered part of a normal home purchase and don’t cause problems.3USDA Rural Development. HB-1-3555 – Chapter 6: Loan Purposes
Who Counts as an Interested Party
The caps don’t apply only to the seller. Fannie Mae defines “interested parties” to include anyone with a financial stake in the transaction: the seller, the builder or developer, the real estate agent or broker, and their affiliates. Contributions from all of them are added together when measured against the cap.1Fannie Mae. Interested Party Contributions (IPCs) A 2% credit from the seller plus a 2% commission rebate from your agent applied to closing costs is a 4% interested party contribution, not two separate 2% contributions. This aggregation surprises buyers when several parties each offer what feels like a modest credit.
How the Appraisal Can Shrink Your Cap
For every loan type except USDA, the concession cap is calculated against the lower of the sale price or appraised value. When an appraisal lands below contract, the maximum dollar amount drops with it. Agree to buy at $310,000 with 6% in concessions ($18,600), and if the appraisal comes back at $295,000, the 6% cap is now $17,700. That $900 has to come from your pocket or from renegotiation.
Knowing the exact cap for your loan before you write an offer keeps the deal from running into trouble in underwriting, when fixing it means reopening the negotiation or coming up with cash you hadn’t planned to spend.