Conventional Loan Seller Concession Limits by Down Payment Size

The Quick Read: The most a seller can put toward your closing costs on a conventional loan depends on how much you put down. Under Fannie Mae’s Selling Guide, a principal residence or second home gets a 3% cap with less than 10% down, 6% with roughly 10% to under 25% down, and 9% with 25% or more down. The credit can never exceed your actual closing costs, and it cannot fund your down payment. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.

What the Guides Call a “Seller Concession”

Lenders don’t use the phrase “seller concession.” The agency guides say interested party contribution, or IPC, and they split it in two.

A financing concession pays your closing costs and prepaids, such as prepaid taxes and insurance. This type is capped. A sales concession is any amount over the cap, or over your actual closing costs. The guide treats that excess as a price reduction.

Who counts as an interested party? The seller, the builder or developer, the real estate agent or broker, and anyone affiliated with them. The list isn’t exhaustive. It also reaches anyone who benefits from a higher sale price and can influence the deal. A lender is not on the list unless it is the seller or is affiliated with the seller or another interested party. Freddie Mac’s guide defines the group in similar terms.

The Cap Table: Limits by Down Payment

The caps run on three tiers, and both Fannie Mae and Freddie Mac use the same ones. They are written as LTV ratios, so the down payment column below is approximate.

Read the edges carefully. Exactly 10% down is exactly 90% LTV, so you land in the 6% tier. Exactly 25% down is 75% LTV, so you land in the 9% tier. Put 24% down and you are at 76% LTV, which is still 6%. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

Occupancy changes the story. Investment properties get 2% at any LTV. That is the one sentence this article spends on them, because occupancy also sets leverage. A principal residence runs to 95% LTV on the standard purchase program, and to 97% when a first-time buyer is reviewed on a fixed rate. Second homes run to 90%. A second home at 90% LTV sits right on the 6% tier. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.

The first tier matters most for the buyers who need help most. At 3% down or 5% down, you are above 90% LTV, so you get the smallest credit allowance. Lendmire’s piece How Much Down Payment Conventional Loans Need by Occupancy Type covers the leverage side of that trade. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.

How the Cap Is Calculated, Step by Step

Across the conventional programs we place files with through wholesale lenders, the sequence is the same. Here is what happens to a seller credit once it’s in a contract.

1. The contract states the credit. It should say the credit applies to the buyer’s closing costs and prepaids, nothing else.

2. The lender sets your LTV. It divides the loan amount by the lesser of price or appraisal. If you have a second lien, it uses combined LTV (CLTV).

3. That ratio picks the tier. The result is 3%, 6%, or 9%.

4. Two tests run. The credit must fit under the percentage cap. It must also fit under your actual closing costs.

5. Any excess becomes a price cut. The lender subtracts it from the sales price and recalculates LTV using the lower of the reduced price or the appraisal.

6. The credit is documented. Freddie Mac requires the amount and source of every IPC in the file and on the settlement paperwork.

So the outcome turns on four things: your final LTV tier, your real closing costs, the lesser of price or appraisal, and who is paying.

Worked Examples Without Dollar Figures

Take any home where the price equals the appraisal. Call that value 100%.

The cap grows as the down payment grows. Moving from the lowest down payment tier to the middle tier doubles the allowance, and the highest tier triples it. Whether that is worth it depends on your cash. Not everyone has the extra down payment. But a buyer who is close to a tier edge should ask the lender how the numbers change before choosing a down payment. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.

When the appraisal comes in low. Say the price is 100% and the appraisal comes in at 97% of the price. The cap is now figured on 97%, so every tier shrinks by about 3%. Your credit allowance falls with it. The same thing happens to your LTV. The cap follows the lesser value.

When You Go Over the Cap

Going over is where files stall. Here is the chain reaction in plain numbers.

Picture a first-time buyer at 97% LTV. That puts the file in the 3% tier. The contract gives a 4% seller credit, and actual closing costs are about 5% of price. The credit is under closing costs but 1 point over the cap. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.

That 1 point becomes a sales concession. The lender lowers the price by 1%, so the price base is now 99% of the original. The loan stays at 97% of the original price. The new LTV is about 97.98%. That is above the 97% maximum for the program.

The fix has two options. You cut the credit back to 3% in the contract, or the loan amount comes down so LTV fits again, which means more cash from you. The first option is nearly always easier. Writing the contract inside the cap from the start avoids the problem entirely.

A concession over the cap can also push a loan into a higher-LTV bracket. That affects eligibility and mortgage insurance. Mortgage insurance is required above 80% LTV. You can ask to cancel it at 80% of the original value, subject to payment history and no subordinate liens. The servicer must end it automatically at 78%. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.

What the Credit Can and Can’t Pay For

A rate buydown subsidy must fit inside the allowable financing concessions. A buydown is a payment from someone to lower your loan’s interest cost for a period. It eats cap room like any other closing cost.

And no cash back. If the credit is bigger than your actual closing costs, the leftover is a sales concession. It is not money in your pocket.

Edge Cases Worth Knowing

Customary seller-paid costs. Fees a seller customarily pays under local custom are not subject to the maximum financing concessions. Local custom decides this, so ask your lender how it’s treated in your area.

Buyer-agent commission. The agencies issued a clarification saying a seller or seller’s agent may keep paying the buyer’s agent commission under local common and customary practice. Those amounts need not count toward the IPC limits. Confirm with your lender and the current guide before you count on it.

Lender credits are a different animal. A lender credit that comes from premium pricing is not an IPC under Fannie Mae, even if the lender is an interested party. In practice that credit is usually built into the loan’s pricing. The CFPB’s Closing Disclosure explainer says lender credits are typically exchanged for a higher interest rate. If the lender is the seller or is affiliated with an interested party, though, different treatment can apply. Both agencies have revised how lender incentives are handled, so ask your loan officer about current rules rather than assuming.

Freddie Mac’s own REO. Concessions paid by Freddie Mac when it is the seller of its own foreclosed property are not subject to the cap.

Side deals. Don’t. Fannie Mae’s Selling Guide describes a case where undisclosed rebates outside closing would have made loans ineligible for purchase. The appraiser needs the full contract and every concession.

Other loan types. FHA, VA, USDA, and jumbo loans use different rules. This article doesn’t cover them, so don’t carry these percentages over.

Why the Tiers Exist

It’s a risk idea. The less you put in, the more the lender worries that a high price is propped up by seller money. A big credit on a thin down payment can inflate the sale price above true value. A bigger down payment means more of your own money is at stake, so the guides allow a larger credit.

That also explains why the cap uses the lesser of price or appraisal. Your credit shouldn’t push the loan beyond what the home is worth.

Credit or Price Cut? How to Choose

A seller credit often comes with a higher price. A price cut lowers your loan amount and your LTV directly. A credit leaves the price alone and cuts your cash at closing. You can see this on your paperwork, where the Closing Disclosure shows a “Seller Credit” line and a separate “Cash to Close” figure that differs from total closing costs.

The credit-plus-higher-price route has a catch: the appraisal has to support the higher price. If it doesn’t, the cap shrinks and the deal needs rework. Lendmire’s piece Down Payment Assistance vs Seller Credits on a Conventional Loan shows when each tool fits.

Key Terms Defined

Interested party contribution (IPC): Money from someone with a stake in the sale, such as the seller, builder, or agent, that pays part of your costs.

Financing concession: The capped portion of an IPC that covers your closing costs and prepaids.

Sales concession: Any credit over the cap or over actual closing costs. It is treated as a price reduction.

LTV / CLTV: The loan amount divided by value. Combined LTV adds any second loan on the home.

Prepaids: Costs paid at closing for future expenses, like the first stretch of homeowners insurance and property taxes.

Pre-Offer Checklist

• Ask your loan officer for your likely LTV tier before you write the offer.
• Estimate your actual closing costs. Don’t ask for a credit bigger than those costs.
• Word the credit in the contract as applying to buyer closing costs and prepaids only.
• Disclose every credit, rebate, or side payment to the lender and appraiser.
• If your down payment changes mid-contract, redo the cap math, because the tier may move.
• Check that the credit on your Closing Disclosure matches the contract.

If You’re Ready to Run Your Own Numbers

If you are buying a home and want to see whether a conventional loan fits your file, Lendmire can help you compare the options and what each one asks of the file. The team arranges conventional loan programs through wholesale lenders, and program details are subject to lender guidelines and full file review. This is not a commitment to lend.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. Fannie Mae Selling Guide B3-4.1-02, Interested Party Contributions

2. Freddie Mac Guide Section 5501.6

3. Fannie Mae Selling Notice on buyer-agent commissions

4. CFPB Closing Disclosure explainer

5. Fannie Mae Selling Guide (undisclosed IPC example)