Last reviewed October 26, 2026.
Team members reviewing listing materials. Maggie Real Estate Group team photo (also used on the group's Sell page).
Short answer: Seller concessions are costs the seller agrees to pay on the buyer's behalf, credited at closing. They can usually cover closing costs, prepaid items and rate buydowns, but not the buyer's down payment, and each loan program caps how much the seller may contribute.
Seller concessions show up in many Washington purchase negotiations, especially when a home has been on the market for a while. This guide explains what they are, what they can and cannot pay for, the limits set by the major loan programs, and how to request an amount your lender will actually allow. To decide between a credit and a lower price, see our companion article on seller credit vs price reduction.
What seller concessions are
A seller concession, often called a seller credit or closing cost credit, is an amount the seller agrees in the purchase contract to pay toward the buyer's costs. The money does not change hands as cash. It appears as a credit to the buyer and a charge to the seller on the closing documents, reducing the cash the buyer must bring to closing. Lenders call these interested party contributions because they come from someone with a financial interest in the sale.
Concessions are different from the seller's own costs, such as the listing brokerage fee or the seller's share of excise tax. They are also different from buyer brokerage compensation. If a seller agrees to pay the buyer's broker, ask your lender how that payment is treated, because lenders evaluate brokerage compensation separately from concessions.
What concessions can and cannot pay for
| Usually allowed | Usually not allowed |
|---|---|
| Lender fees, appraisal, title and escrow charges | The buyer's minimum down payment |
| Prepaid items such as property taxes, homeowners insurance and interest | Cash back to the buyer beyond actual costs |
| Discount points or a temporary rate buydown | Amounts above the loan program's limit |
| Certain HOA transfer or setup fees | Credits the lender has not approved |
The rule of thumb is that a credit can only pay real costs shown on the closing documents. If the credit is larger than the costs it can be applied to, the unused portion is typically lost or the contract must be amended.
Loan program limits
Each program caps contributions as a percentage of the price or value. Fannie Mae's limits for conventional loans depend on occupancy and loan-to-value (LTV/CLTV), and the percentage is applied to the lower of the sales price or the appraised value, not to the loan amount.
| Loan type | Maximum seller contribution | Source |
|---|---|---|
| Conventional, primary home or second home, LTV above 90% | 3% | Fannie Mae B3-4.1-02 |
| Conventional, primary home or second home, LTV 75.01% to 90% | 6% | Fannie Mae B3-4.1-02 |
| Conventional, primary home or second home, LTV 75% or less | 9% | Fannie Mae B3-4.1-02 |
| Conventional, investment property (all LTVs) | 2% | Fannie Mae B3-4.1-02 |
| FHA | 6% of the sales price | HUD Handbook 4000.1 (interested party contributions) |
| VA | 4% of reasonable value for concessions; normal closing costs are counted separately | VA: funding fee and closing costs |
| USDA guaranteed | 6% of the sales price | USDA HB-1-3555, Chapter 6 |
Jumbo and portfolio loans set their own limits. Always ask your lender to confirm the cap for your specific loan before you sign an offer.
A worked example
The figures below are hypothetical and illustrate how limits work; they are not a quote. The example assumes the home appraises at $900,000 or more, so the lower of price and appraised value is $900,000, and that there is no second loan (LTV and CLTV are both 80%).
| Item | Amount |
|---|---|
| Purchase price | $900,000 |
| Conventional loan, 20% down (LTV 80%) | $720,000 |
| Fannie Mae limit at 80% LTV (6%) | Up to $54,000 |
| Lender's estimate of buyer closing costs and prepaids (assumed) | $18,000 |
| Credit the buyer can actually use for closing costs | $18,000, unless the extra funds points or a buydown |
Even though the program would allow up to $54,000, a credit larger than the eligible costs would go unused. If the buyer wants a larger concession, the extra can sometimes be applied to discount points or a temporary buydown, priced by the lender.
When sellers agree to concessions
Concessions are a negotiation tool, not an entitlement. Sellers of homes that have been on the market for several weeks, especially after a price reduction, may be more open to a lower price or a seller credit, and for some buyers a targeted incentive such as a rate buydown or a closing cost credit is worth more than a similar-sized price cut. In a competitive, multiple-offer situation, a request for concessions can weaken an offer. Time on market, recent price changes and the condition of the home are better guides than any fixed rule.
Concessions in buyer and seller markets
How much room there is to negotiate concessions depends on the balance between buyers and sellers for the specific home type and price band. When many buyers compete for few homes, sellers rarely agree to concessions, and asking for them can weaken an offer. When homes sit longer and price reductions become common, sellers are more willing to help with costs. Look at the specific listing's time on market and price history, and compare it with similar homes nearby, rather than relying on a general statement about the market. Your broker can pull this information before you write an offer.
Concessions also show up in new construction. Builders sometimes offer incentives such as help with closing costs, rate buydowns through a preferred lender or design credits. Read the terms carefully: some incentives require using a particular lender, and you should compare the total cost, including the rate and fees, with an outside loan estimate.
How concessions appear on your closing documents
Before closing, your lender provides a Closing Disclosure that lists your loan terms and costs. Seller credits appear as amounts paid by the seller or as credits to you, reducing the cash you need to close. Check that the credit matches the amount in your signed agreement and that it is applied to eligible costs. If anything looks wrong, raise it with your lender and escrow officer immediately, because changes close to the closing date can cause delays.
How to request the right amount
- Get a written loan estimate before you write the offer
- Ask the lender for the maximum contribution allowed on your loan
- Request a dollar amount tied to eligible costs, not a round percentage
- Decide in advance whether any extra will fund points or a temporary buydown
- Make sure the appraisal is likely to support the contract price
- Confirm the credit appears correctly on the Closing Disclosure
Frequently asked questions
Can seller concessions be used for a down payment?
No. Major loan programs do not allow seller contributions to fund the buyer's minimum down payment.
Do seller concessions affect the appraisal?
The appraiser considers the contract, including concessions. Concessions above program limits can be treated as sales concessions that reduce the value used for the loan.
Are seller concessions taxable to the buyer?
Seller-paid points may affect how the buyer reports points and basis. Ask a tax professional and see IRS guidance on home mortgage interest.
What happens if the credit is more than my closing costs?
The unused amount is usually lost or the contract is amended. Request an amount based on your lender's estimate.
Sources
- Fannie Mae Selling Guide B3-4.1-02: Interested party contributions
- HUD Handbook 4000.1: FHA Single Family Housing Policy Handbook (current PDF; interested party contributions)
- VA: VA funding fee and loan closing costs (seller concessions)
- VA Lenders Handbook (M26-7)
- USDA HB-1-3555 Chapter 6: Loan purposes (seller contributions)
- IRS Publication 936: Home mortgage interest deduction (points)
- CFPB: Understanding the Closing Disclosure
This article is general information, not legal, tax or lending advice. Rules and program terms change; confirm details with the relevant professional and the current official source. Last fact-checked October 29, 2026.
About the author
Maggie Sun, Managing Broker, leads Maggie Real Estate Group, a Bellevue-based bilingual (English and Mandarin) team serving buyers, sellers and investors across Seattle and the Eastside.
Related guides
- Seller concessions and seller credits (guide hub)
- Home inspection negotiation in Washington
- Realtor fees and commission in Washington
