A seller agrees to cover some of your closing costs. Before you write it into the contract, there is a limit — and it depends on which loan you’re using and, on conventional financing, on how much you’re putting down.
How Much Sellers Can Legally Pay Toward Closing?
- Conventional loans cap seller contributions at 3%, 6%, or 9% of the purchase price depending on your loan-to-value ratio, with investment properties limited to 2%.
- FHA allows 6%.
- USDA allows 6%.
- VA allows 4% for a specific list of items, plus customary closing costs on top.
Exceed the cap and the excess doesn’t simply get disallowed — it reduces the value your loan is calculated against, which can break your approval entirely.
One rule applies across every program, and it surprises most first-time buyers: a seller concession can never fund your down payment.
The Seller Concession Rule That Catches People First
Fannie Mae’s Selling Guide states it plainly: “Fannie Mae does not permit IPCs to be used to make the borrower’s down payment.”
The same section bars them from satisfying reserve requirements or any minimum borrower contribution.
FHA, VA and USDA apply the same principle.
What concessions can cover is closing costs and prepaid items, origination fees, title charges, the appraisal, recording fees, prepaid property taxes and homeowners insurance, and escrow funding.
Fannie also permits them to cover homeowners association assessments for up to 12 months after settlement.
So a buyer with 3% saved cannot ask the seller to supply the other 2% and reach 5% down. The down payment has to come from the borrower’s own funds, a gift from an eligible donor, or an approved assistance program. For how the down payment minimums themselves work, see our guide to Fannie Mae down payment requirements.
Conventional: Limits Tiered by LTV
Fannie Mae and Freddie Mac tier the cap by occupancy and loan-to-value, calculated on the lower of the sales price or the appraised value — not the loan amount:
| Occupancy | LTV / CLTV | Maximum |
|---|---|---|
| Primary residence or second home | Above 90% (under 10% down) | 3% |
| Primary residence or second home | 75.01% to 90% (10–25% down) | 6% |
| Primary residence or second home | 75% or less (25%+ down) | 9% |
| Investment property | Any LTV | 2% |
The structure is counterintuitive at first. The buyer putting the least down — who most needs help with closing costs — gets the smallest allowance. The logic is risk-based rather than need-based: a high-LTV loan already carries more exposure, and a large seller credit on top of it can mask an inflated price.
The practical effect on a $400,000 purchase is substantial. At 95% LTV the cap is $12,000; at 80% LTV it’s $24,000; below 75% it’s $36,000. Buyers sometimes discover mid-transaction that the credit they negotiated exceeds what their down payment permits.
Who Counts as an “Interested Party”
The limits don’t apply only to the seller. Fannie defines interested parties to include “the property seller, the builder/developer, the real estate agent or broker, or an affiliate who may benefit from the sale of the property and the sale at the highest price possible.”
That means a builder incentive, an agent’s credit back to you, and a seller credit all draw from the same pool. A buyer collecting contributions from two sources can breach the cap without either party realizing it.
A lender or employer is generally not an interested party — unless the lender is also the seller or is affiliated with one. Lender credits therefore usually sit outside these limits, which makes a lender credit a useful supplement when the seller’s contribution is already maxed out.
FHA: A Flat 6%
FHA permits interested parties to contribute up to 6% of the sales price, with no LTV tiering. The cap applies to the sales price even when the appraised value comes in lower.
For a buyer putting 3.5% down, this is the most generous structure available among the agency programs — a conventional buyer at the same low down payment is limited to 3%. On a $350,000 purchase, that’s $21,000 against $10,500.
That difference is worth modeling before choosing a program, because it can offset a meaningful share of FHA’s mortgage insurance cost in the first years. Our FHA loan requirements guide covers the broader comparison.
VA: Two Buckets, Not One
VA’s structure is the most frequently misreported, because the familiar 4% figure covers only part of what a seller may pay.
The 4% limit, calculated on the VA appraiser’s reasonable value, applies to a specific list: prepaid property taxes and insurance, appliances or gifts from a builder, discount points beyond the market norm, payoff of the buyer’s judgments or debts, and the VA funding fee.
Separately, the seller may pay the customary loan costs — appraisal, origination, title work, recording — and those do not count toward the 4%. A transaction can therefore see total seller-paid costs well above 4% while remaining fully compliant.
The commonly cited example is a seller covering 2% in customary loan costs plus 3% in 4%-bucket items, for 5% total. Both buckets are within their limits.
USDA: 6% of the Sales Price
USDA permits up to 6% of the sales price, matching FHA. Because USDA requires no down payment, a well-negotiated concession can bring a buyer close to no cash at closing. Program eligibility rules are covered in our USDA home loan requirements guide.
The Ceiling Above Every Limit
No matter which program you’re using, a seller contribution cannot exceed your actual closing costs. The percentage caps are maximums, not entitlements.
If your closing costs total $9,000 and your cap allows $18,000, the seller can contribute $9,000. The difference cannot be rebated to you, applied to principal, or converted to cash. Buyers sometimes negotiate a large credit expecting to pocket the remainder; that is not how it works, and a lender will reduce the credit at closing.
Financing Concessions Versus Sales Concessions
This distinction decides whether an over-limit contribution is a nuisance or a deal-killer.
Financing concessions are contributions toward the loan transaction — closing costs and prepaids — subject to the table limits above.
Sales concessions are non-realty items: cash or cash-equivalent gifts, non-credited agent rebates, furniture, automobiles, moving costs. Critically, any financing concession above the limit becomes a sales concession, as does any amount exceeding your actual closing costs.
Sales concessions must be deducted from the sales price before the loan is sized. The lender then uses the lower of that reduced figure or the appraised value to compute LTV. Exceed your cap by $8,000 on a $400,000 purchase and the loan is underwritten against $392,000 — which can push you into a higher LTV tier, trigger mortgage insurance you hadn’t planned for, or reduce the loan below what you need to close.
If a seller offers to throw in a riding mower or cover your movers, that is a sales concession, and it has the same effect.
Before You Negotiate
Confirm your cap with your loan officer first, including your LTV tier if you’re going conventional.
Total every interested-party contribution, not just the seller’s — builder incentives and agent credits count.
Estimate your closing costs before naming a number. Asking for more than your actual costs produces a credit you cannot use. Our first-time home buyer guide walks through what those costs typically include.
Ask about a lender credit if the seller’s limit isn’t enough. It usually sits outside these caps.
Frequently Asked Questions
Can a seller concession cover my down payment?
No. Every major loan program prohibits it, and Fannie Mae’s Selling Guide states directly that interested party contributions may not be used to make the borrower’s down payment. The same restriction blocks them from satisfying reserve requirements or minimum borrower contributions. Concessions are limited to closing costs and prepaid items — origination and title charges, the appraisal, prepaid taxes and insurance, escrow funding, and in some cases HOA dues. Your down payment must come from your own funds, an eligible gift, or an assistance program.
What happens if the seller agrees to pay more than the limit?
The excess is reclassified as a sales concession and deducted from the sales price before your loan is underwritten. Your lender then calculates loan-to-value against the reduced figure, which can move you into a worse LTV tier, trigger mortgage insurance, or shrink your loan below what you need. The agreement isn’t void, but the financing changes underneath it. Catching this during contract negotiation is far easier than restructuring days before closing.
Do builder incentives and agent credits count toward the limit?
Yes. The caps apply to all interested parties, which Fannie defines to include the seller, the builder or developer, the real estate agent or broker, and affiliates who benefit from a sale at the highest possible price. A builder’s closing cost incentive and a seller credit draw from the same allowance. Lender credits are generally an exception, since a lender isn’t an interested party unless it’s also the seller or affiliated with one.
References
- Fannie Mae. (2025). Selling guide B3-4.1-02: Interested party contributions (IPCs).
- U.S. Department of Housing and Urban Development. (2026). FHA single family housing policy handbook 4000.1.
- U.S. Department of Veterans Affairs. (2026). VA lenders handbook, M26-7.
- U.S. Department of Agriculture. (2026). Single family housing guaranteed loan program technical handbook (HB-1-3555).
About Jeff
Jeff Moran, NMLS #483943, is an experienced mortgage loan originator of 29 years, currently working with C2 Financial Corporation · Branch NMLS #2812645 · Bluffton, SC.
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