How Much a Seller Concession Saves on a First-Time Conventional Loan

The Quick Read: A seller concession cuts the cash you bring to closing. It does not cut the price, the loan amount, or the down payment. On a first-time conventional purchase with a small down payment, the credit is capped at the lowest tier, 3% of the lower of price or appraised value. It also can’t exceed your actual eligible costs. The dollar saving is therefore the smaller of those two limits, and it differs on every file.

What Is a Seller Concession, Exactly?

A seller concession is a negotiated term in the purchase contract. The seller agrees to pay part of the buyer’s closing costs. Underwriting calls these payments interested party contributions: money from someone with a stake in the sale, used for costs that normally fall on the buyer.

On most files I see, the first-time buyer’s mental model is wrong in one of two ways. Some think the credit lowers the price. Others think it lowers the loan. It does neither. The contract price stays where it is, and the loan is sized off that price and your down payment. The credit just shows up at closing as money toward your costs.

Here is how it compares to its two look-alikes.

A lender credit is a different tool altogether. It comes from the loan’s pricing, not from the seller, and it is not a negotiated contract term.

How Big Can the Credit Be on a First-Time Loan?

The cap depends on your LTV. Fannie Mae’s Selling Guide sets the maximum for a principal residence or second home by loan-to-value tier.

Now match that to the conventional programs Lendmire arranges through wholesale lenders. A first-time buyer on a one-unit principal residence with a fixed rate can go to 97% LTV, which means 3% down. Everyone else on a standard purchase tops out at 95%. Both land in the top tier, above 90%. So the first-time buyer with a small down payment gets the 3% cap. Put down enough to drop to 90% LTV or lower and the cap rises to 6%. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

That is why the first-time angle matters. The buyer who needs help most gets the smallest ceiling.

Check each product’s own matrix for its limits, since contribution limits can differ from one low-down-payment product to another. Every contribution’s amount and source must be documented in the file and shown on the closing disclosure.

One contrast: on an investment property the cap is 2% at every LTV. That is a different occupancy, and this article covers the home you live in.

What Is the Cap a Percentage Of?

It is a percentage of the lower of the sales price or the appraised value. It is not a percentage of the loan.

This matters when an appraisal comes in light. Say the contract price is above the appraised value. The 3% is now figured on the appraised value, so the ceiling shrinks. The same appraisal also affects the loan itself, since LTV is measured against the lower figure. Files with thin down payments feel that squeeze first.

What Can the Credit Pay For (and What Can’t It)?

The credit covers borrower closing costs, including prepaids. It can also cover HOA assessments for a period after settlement, up to 12 months. The Selling Guide limits it to costs that are normally the buyer’s.

It can’t be used for the down payment, financial reserves, or the minimum borrower contribution. If your plan was to ask the seller for help reaching 3% down, that plan fails. The down payment comes from your own documented funds, gift funds, or another permitted source. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.

The second limit trips up more files. The credit can’t exceed your actual eligible costs. Whatever is left over does not come back as cash. It gets treated as a sales concession, which brings us to the next section.

How Underwriting Handles the Credit, Step by Step

1. The contract names it. The seller’s credit goes into the purchase agreement. The lender sees it there, and the appraiser is told about it. If an inspection later renegotiates the credit, that amendment goes to the appraiser too.

2. The lender finds your LTV. Your down payment sets the tier, which sets the 3%, 6% or 9% cap.

3. The cap is applied to the lower of price or value. That gives a ceiling in percentage terms.

4. The credit is tested against your costs. Lender fees, title charges, prepaids and eligible HOA items are totaled. The credit counts only up to that total.

5. Any excess becomes a sales concession. Concessions above the limit are deducted from the sales price, and the maximum LTV is recalculated on the reduced number. Fannie Mae’s underwriting job aid shows exactly where this happens in the automated review.

6. The appraiser adjusts the comparables. Comparable sales that carried concessions must be adjusted for any effect on their prices. A dollar-for-dollar adjustment is acceptable when the market’s reaction matches the full concession.

7. The closing disclosure shows it. The credit appears as a line item crediting you, and the final figures should reconcile to the contract.

The step where the credit is applied is where first-time files go wrong. At 97% LTV there is no room to spare. If excess credit is deducted from the price and LTV is recalculated, the loan can fall outside the program limit. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.

A Worked Example, in Percentages

Take a hypothetical purchase at 97% LTV, with the buyer putting 3% down. The cap is 3% of the lower of price or value. Assume your eligible costs and prepaids come to 2.5% of the price. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.

• The seller can credit up to 2.5%. That is the smaller of the two limits.
• Your cash to close drops by 2.5% of the price.
• The loan amount stays the same. So does the price.

Now change one input. Assume instead that your costs come to 3.5% of the price. The cap binds at 3%, and you cover the 0.5% gap yourself. Costs are the ceiling when they’re low. The tier is the ceiling when they’re high.

Both examples are modeled assumptions, not market data. Your own Loan Estimate shows your real costs, and the cap math follows from there.

Savings Ladder: How the Cap Changes With Your Down Payment

The jump from a smaller down payment to a larger one raises the ceiling. For many buyers the ceiling isn’t the constraint, since actual costs often fall below it. But a buyer with a larger down payment has more room to negotiate if costs run high.

Concession or Price Cut?

A price cut lowers the loan, so it lowers the balance you pay interest on. A concession leaves the loan and the monthly payment untouched. It only helps your monthly budget if the saved cash frees up money or funds a rate buydown.

A concession also leaves the price on paper where it was. That can matter to a seller whose neighbors will see the recorded sale. It is one reason sellers often prefer it. The price stays up, and they give the same dollars as a credit instead.

Mortgage insurance follows the loan, not the credit. With a conventional loan above 80% LTV, insurance is required. You can ask to cancel it at 80% of the original value with a good payment history, no subordinate liens, and no decline in value. The servicer must end it automatically at 78%. A concession does not change that schedule. A price cut that shrinks the loan might. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.

Spending the Credit: Costs First, Points Second

If your credit is smaller than your costs, every dollar goes to costs and the question answers itself. If your costs come in under the credit, you may have room left. A buyer can apply that room toward other loan-pricing options. The CFPB explains how lender credits and points trade off against what you pay at closing. Buydowns paid by the seller or an affiliated lender count toward the same cap.

Buying down the loan is a bet on how long you keep it. Most borrowers only benefit if they hold the mortgage long enough for the savings to outweigh the upfront cost. A buyer who may move or refinance soon is better off using the credit on prepaids and fees. This is a decision for your Loan Estimate, not a rule of thumb.

Where the General Rule Breaks

Several items sit outside the normal cap logic.

• Customary seller-paid costs. Fees the seller pays under local custom are not subject to the maximum.
• Agent commissions. A 2024 Fannie Mae Selling Notice said that when a seller keeps paying the buyer’s agent commission under local common practice, those amounts need not count toward the limits.
• Realtor rebates. A rebate that is not applied to the transaction is a sales concession.
• Rate buydowns. A temporary or permanent buydown paid by an interested party counts toward the cap.
• Builder commitments. Standby or forward commitments signed before your contract are not tied to your specific loan, so they are not subject to the maximum.
• HOA payments. A limited period of assessments paid after closing may be eligible, with the exact window depending on the lender and the file. Past that, the payment is treated as an abatement under a separate section.
• Prorated tax credits. An older Guide version treated a legitimate prorated tax credit as outside the financing concession. The 2025 update clarified this treatment, so ask your loan officer how the current Guide reads on your file.
• Undisclosed side payments. A gift or rebate that never reaches the file is a problem, not a shortcut. Everything should appear in the contract and on the closing disclosure.

Common Mistakes

1. Asking for the maximum. Ask for your estimated costs, not the ceiling. The excess does not come back as cash.

2. Planning to use it for the down payment. It can’t be.

3. Confusing a seller credit with a lender credit. One is a contract term. The other trades against the rate.

4. Overlooking the appraisal. A low appraisal shrinks the cap and can break LTV.

5. Trading price for credit without checking value. Some sellers cover a concession by raising the price, and the appraisal may not support it.

6. Leaving a deal term out of the file. Every credit should match across the contract, the lender’s records and the closing disclosure.

Brokers help here mostly by catching mismatches before they reach underwriting. Lendmire’s article Does a Wholesale Broker Help First-Time Buyers Get a Conventional Loan? covers that process. For program context, see Lendmire’s conventional loan programs. Every figure above is subject to lender guidelines and full file review, and none of it is a commitment to lend.

Key Terms Defined

Interested party contribution (IPC): Money paid toward your costs by someone with a stake in the sale, such as the seller.

Sales concession: A contribution above the allowed limit or beyond your actual costs, treated as a reduction of the sales price.

LTV (loan-to-value): The loan amount divided by the lower of price or appraised value.

Prepaids: Costs paid up front for items like homeowners insurance and taxes, which an eligible credit can cover.

Buydown: A payment that lowers the interest rate for a period or for the life of the loan.

Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.

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.

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. Fannie Mae’s underwriting job aid

3. CFPB: How should I use lender credits and points?

4. 2024 Fannie Mae Selling Notice