Seller Concessions: Mortgage Limits by Loan Type

A seller concession is a contribution by the seller toward the buyer’s closing costs, either as a direct payment or as credit at the closing table. Federal mortgage guidelines limit how much the seller can contribute, and the limits vary depending on the loan type—conventional, FHA, VA, USDA, or non-conforming.

What counts and doesn’t count as a concession

Seller concessions are narrowly defined in mortgage guidelines. They cover most standard closing costs that benefit the buyer—but not all.

Concessions include:

• Appraisal, credit report, underwriting, loan processing, title insurance, title search
• Recording fees, transfer tax, survey
• Property inspection, property tax proration, homeowners insurance premium at closing
• HOA transfer fee, HOA inspection, HOA document review
• Attorney fees (buyer’s counsel)
• Homeowner association dues or special assessments owed by seller that must be cleared
• Repair or improvement credits if agreed in the sales contract (framed as seller concession)

Do NOT count as concessions:

• Real estate agent commissions (this is the seller’s expense, not a concession to the buyer)
• Seller’s attorney fees or title company fees incurred by seller
• Seller’s existing mortgage payoff (this is debt payoff, not a gift to the buyer)
• Owner-occupied property repairs or updates the seller performs before sale
• Lease assumptions or property management contract assumptions

The distinction matters: if the loan officer incorrectly includes non-allowable items, the loan-to-value calculation becomes inflated and the loan may be denied or require renegotiation.

Conventional mortgages: down-payment tiered limits

Fannie Mae and Freddie Mac (the secondary market entities backing most conventional loans) set seller concession limits based on the buyer’s down payment:

Example: you’re buying a $400,000 house with a 10% down payment ($40,000). Your down-payment tier is 10–14.99%, so the seller can contribute up to 4% of $400,000 = $16,000 toward your closing costs.

The logic is economically grounded: a smaller down payment means the buyer has less skin in the game, so regulators cap concessions to ensure the buyer still bears meaningful closing-cost risk.

FHA mortgages: 6% cap

FHA loans allow seller concessions up to 6% of the purchase price, regardless of down payment size. This is the most generous limit. The trade-off is that FHA requires mortgage insurance (upfront and annual), meaning the total borrowing cost is higher. But the seller concession cap itself is friendlier.

On a $300,000 purchase with an FHA loan, the seller can contribute up to $18,000 toward closing costs—even if the buyer’s down payment is 3.5%.

VA mortgages: 4% cap

VA-backed loans allow seller concessions up to 4% of the purchase price. This is stricter than FHA or high-down-payment conventional loans, though still meaningful.

On a $300,000 house, a VA borrower can request up to $12,000 in seller concessions. The rationale is that VA loans are zero-down, so the guarantee to the VA lender is the entire purchase price. The VA sets concession caps conservatively to protect lenders.

Unused seller concessions cannot be carried forward in VA loans. If the seller offers $8,000 but only $6,000 is needed for closing costs, the extra $2,000 is typically forfeited (it cannot be credited to the buyer’s first payment or down payment, as down payments are not required on VA loans).

USDA mortgages: 6% cap

USDA loans, like FHA loans, allow 6% of purchase price in seller concessions. USDA loans are zero-down mortgages in rural and designated areas, similar to VA loans, but the USDA’s concession cap is more generous.

On a $250,000 USDA purchase, the seller can contribute up to $15,000 in closing costs.

How exceeded concessions affect the loan

If you negotiate seller concessions that exceed your loan program’s cap, several outcomes are possible:

1. Renegotiation: the lender or underwriter will ask the seller to reduce the concession to the allowable limit. Most purchase contracts have “contingent upon loan approval,” so exceeding the cap is usually caught and resolved before closing.

2. Loan-to-value recalculation: if the concession is applied as a credit against the down payment (inflating the effective LTV), the loan may require higher down payment or mortgage insurance adjustments. For example, if the seller offers $15,000 in concessions but you can only use $10,000, the extra $5,000 is forfeited—you don’t get to use it toward principal.

3. Loan denial: in tight lending environments, exceeding concession limits is a deal-breaker. Some loan officers will not approve a loan where concessions exceed the cap.

4. Appraisal impact: if the appraiser learns that the sale price is inflated by concessions (e.g., buyer and seller colluded to raise the price to inflate the amount of concessions), the appraisal may be reduced, and the loan-to-value becomes too high.

Negotiating seller concessions into the purchase contract

Seller concessions are negotiated during the offer phase and written into the purchase contract. Standard contract language is: “Seller shall pay up to $X toward buyer’s closing costs and/or prepaid items.”

Include specific items if possible (appraisal, title insurance, buyer’s attorney) so there’s no ambiguity at closing. Also include language that concessions cannot exceed the lender-required maximum. This protects both parties: the buyer knows the maximum they can claim, and the seller knows they won’t be forced to contribute more.

If you’re a buyer and the seller offers concessions, verify with your loan officer that the amount is within your program’s limit before signing the contract. Discovering a violation at underwriting can kill the deal or force painful renegotiation just days before closing.

Seller concessions and cash-out refinances

Seller concessions apply only to purchase-money mortgages (loans used to buy the property). Refinances and cash-out refis do not involve seller concessions. If you’re refinancing, closing costs come from your own funds or are rolled into the new loan balance.

Appraisal and concession documentation

Appraisers must know about seller concessions because they can affect property value perception. If the appraiser sees that concessions were used to subsidize an inflated purchase price, the appraised value may come in lower than the purchase price, triggering an appraisal contingency dispute. Always disclose concessions to the appraiser upfront.

Similarly, underwriters will request a copy of the sales contract and any amendment showing the concession amount. Transparency avoids downstream surprises.

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