The Quick Read: Structuring a seller concession means deciding four things: how much to ask for, what it can pay for, how the contract words it, and when you request it. The amount is capped by a percentage tied to your down payment and how you will use the home. Every dollar must be disclosed, and none of it can go toward your down payment.
Most buyers treat a seller credit as a haggling move. It is better treated as an underwriting item. The lender checks it against a limit, the appraisal can shrink that limit, and the closing paperwork has to match the contract. Get the structure right and the credit does its job. Get it wrong and the lender trims it or the loan stalls.
Conventional payment estimate
The starting figures are an example price at the first-time buyer’s minimum down payment. Replace them with yours.
Editable benchmark: 7.32% as of October 22, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a conventional loan quote.
Estimate seeded at the low end of Fannie Mae’s published range (0.58%–1.86% a year); the insurer prices the actual premium on the score and the leverage. Applies only above 80% loan-to-value.
Illustrative starting assumptions: a $350,000 price, the first-time buyer’s minimum down payment, a thirty-year term at the current Freddie Mac benchmark, mortgage insurance at the low end of Fannie Mae’s published range, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a conventional loan quote; your rate is set by the lender at lock. The mortgage insurance figure is an editable estimate seeded from Fannie Mae’s published typical range, not a premium quote; the insurer prices the actual premium, and the cancellation month assumes scheduled payments with no extra principal and no change in value. Taxes, insurance and dues are editable estimates; closing costs are not included. Conforming loan limits apply by county. Licensed in sixteen states for consumer mortgages.
This walkthrough follows the order a file actually moves. It starts with what a concession is, then the step-by-step underwriting, the structures you can choose from, the edge cases, and the decisions you face in practice. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
What Is a Seller Concession, Really?
A seller concession is money the seller agrees to put toward your costs of buying, instead of lowering the price. On a conventional loan, the agencies call it an interested party contribution, or IPC.
Freddie Mac’s Seller/Servicer Guide defines an IPC as a contribution made by an interested party, in connection with the mortgage or the sale, to or on behalf of the borrower. It can flow directly or through a third party. Interested parties include the seller, the builder, the developer, the real estate agent and their brokerage, and anyone affiliated with them.
You will hear several names for the same thing: seller credit, seller-paid closing costs, seller help. They all land in the same bucket for underwriting.
Two related terms matter later:
- Financing concession. The permitted kind. It pays your closing costs and certain prepaid items.
- Sales concession. The problem kind. It is anything over the cap, and the lender treats it as a price reduction.
Key Terms Defined
Interested party contribution (IPC): Money or value given toward your purchase by someone with a stake in the sale, such as the seller or the agents.
Financing concession: A seller contribution that pays eligible closing costs and prepaid items, within the agency limit.
Sales concession: A contribution that exceeds the limit or pays for something not allowed. The lender lowers the sales price by the excess.
LTV (loan-to-value): Your loan amount divided by the lower of the price or appraised value. Combined LTV, or CLTV, adds any second loan.
Prepaids: Costs paid up front at closing, such as early homeowners insurance and interest, and a capped stretch of HOA dues.
Lender credit: A credit from the lender, such as one funded by the pricing of the loan. It is not the same as a seller credit.
How Is the Limit Set?
The limit is a percentage, and it steps down as your down payment shrinks. Fannie Mae’s Selling Guide section on interested party contributions sets the table below. Freddie Mac’s limits for primary homes and second homes match it.
| Occupancy | LTV / CLTV | Maximum seller contribution |
|---|---|---|
| Primary home or second home | Over 90% | 3% |
| Primary home or second home | 75.01% to 90% | 6% |
| Primary home or second home | 75% or less | 9% |
| Investment property | Any | 2% |
Two details change how you use this table.
The base is the lower of price or appraised value. The percentage applies to whichever number is smaller. If you contract at a price and the home appraises below it, your cap shrinks with it. Ask your loan officer to run both versions early.
The tiers have cliffs. The limit changes at 90% and 75% LTV. A small shift in your down payment or in the value can move you into a different tier. Someone putting down just under 10% gets the 3% tier. Someone putting down just over 10% gets the 6% tier. If you are near a line, that difference is worth planning around. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
For context on the leverage you will be working with: across the wholesale conventional programs I place files with, a one-unit primary home can go to 97% LTV (3% down) when at least one borrower is a first-time buyer, and 95% LTV (5% down) otherwise. Most buyers using high leverage land in the 3% tier. That is a tight ceiling, and it makes sizing the ask matter more. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
How Does Underwriting Treat the Credit, Step by Step?
Here is the sequence a concession follows from offer to closing table.
1. Estimate your real costs. Before you ask for anything, get a realistic list of closing costs and prepaids. The credit can only cover eligible costs. Anything beyond them does not come back to you as cash. Sizing the ask to actual costs avoids the trap of a credit that goes unused.
2. Pick the ask within the tier. Work out your likely LTV, find the percentage cap, and apply it to the lower of price or expected value. Asking for less than the cap leaves room if the appraisal wobbles.
3. Write it into the contract. The concession should appear in the purchase agreement as a dollar amount or a percentage. Verbal promises do not get processed. Your agent drafts the clause, and your loan officer should look at the wording before you submit it.
4. Run it past the lender. Send the proposed number to your loan officer before it goes to the seller. It costs nothing, and it is the step most people skip.
5. The appraisal sets the base. If value comes in at or above price, the cap holds. If it comes in below, the cap base and your LTV both move.
6. Underwriting tests the total. The underwriter adds up every interested party contribution and compares it with the cap. Anything over becomes a sales concession. The price is lowered by the excess, and the maximum LTV is recalculated on that reduced figure. Fannie Mae’s Desktop Underwriter job aid describes the same logic: the cap is measured on the lower of price or value, and the excess is deducted from the price.
7. The Closing Disclosure must match. Freddie Mac requires the amount and source of every contribution to be documented in the file and shown on the Closing Disclosure. The credit appears under “Seller Credits.” Anything promised but not shown is the problem in the next section.
What Can the Credit Pay For, and What Can’t It?
The credit pays for costs of getting the loan and closing. It does not pay for your equity in the home.
| Allowed | Not allowed |
|---|---|
| Closing costs | Your down payment |
| Prepaid items | Cash back to you |
| A capped period of HOA dues | Financial reserves |
| Costs of a rate buydown (check with your lender) | Minimum borrower contribution |
Fannie Mae does not permit IPCs to fund the down payment, reserves, or any minimum borrower contribution. That is why a seller cannot hand you cash to reach 3% down. Lendmire’s piece Can a Seller Fund Down Payment Assistance on a Conventional Loan? covers that boundary in more detail. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
If your credit is larger than your eligible costs, the extra is generally not paid out to you. It is simply lost. That is why the sizing step comes first.
On buydowns, a seller-funded temporary or permanent buydown generally counts against the same limit. Confirm that treatment with your lender, because it is easy to overlook when you stack uses.
What Do the Worked Examples Look Like?
These use percentages only, so you can map them to any price.
Example 1: A credit within the limit. A buyer puts 5% down on a primary home. That puts them in the 3% tier. They ask for 2.5% of the price in seller credits to cover closing costs and prepaids. Total contributions sit below the cap, and the Closing Disclosure shows the credit as a line item. The underwriter has nothing to adjust. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Example 2: A credit over the limit. The same buyer asks for 4% of the price. The cap is 3%, so the excess is the portion above 3% of the price. The underwriter treats that excess as a sales concession and lowers the price used for the loan test by that amount. The LTV is recalculated on the lower number. If the recalculation pushes the loan past what the program allows, the file needs a bigger down payment or a smaller credit. The concession did not vanish. It reshaped the loan.
Example 3: A credit larger than the costs. A buyer secures a credit at the cap, but their actual eligible costs come in lower. Only the eligible costs get covered. The remainder does not become cash to the buyer. The fix is to estimate costs first and ask for a number that fits them.
Example 4: The appraisal shortfall. A buyer contracts with a credit sitting right at the cap. The appraisal comes in below price. The cap now applies to the lower value, so the allowed credit shrinks. The buyer can renegotiate the price, bring more cash, or reduce the credit. This is why asking below the cap gives breathing room.
Where Does the General Rule Break?
The table above covers the usual case. These edge cases change the answer.
Tier cliffs. Covered earlier, and worth repeating. A small change in down payment or value can step you into another tier.
Investment property. If the home is a rental, the cap is 2% at every LTV. For a home you live in, the tiered limits apply, and occupancy decides the leverage.
Buyer-agent commissions. In an April 2024 notice, Fannie Mae clarified that seller-paid buyer-agent fees paid under local custom are not required to count toward the IPC limits. The IPC policy itself did not change. Ask your lender how they apply it to your file.
Lender credits. A credit funded by the pricing of the loan is not an IPC, even if the lender is technically an interested party. It sits outside the cap.
Lender incentives. This one changed recently. Fannie Mae’s SEL-2025-03 announcement raised the incentive limit to $2,500 and requires a lender incentive from an interested party to be treated as a sales concession. Check the current Selling Guide wording, because the rules have been revised.
Down payment assistance. Funds donated to a third party and applied to your specific closing costs are treated as interested party funds.
Builder allowances. Allowances for items bought separately, common with new construction, show as seller credits on the Closing Disclosure.
Other loan types. FHA, VA and USDA loans follow different rules. Lendmire’s article VA Loan Assistance vs Seller Concessions for a Buyer Short on Cash looks at one of those.
What Happens If a Side Deal Isn’t Disclosed?
The loan can become ineligible. Mortgages with undisclosed IPCs are not eligible for delivery. Examples of IPCs include moving expenses, fees paid on your behalf, “silent” seller second mortgages, and other contributions made outside closing that never appear on the settlement statement.
Here is the practical version: if money moves, it goes on the paperwork. A seller who offers to “take care of something on the side” is creating a problem for your loan, not a favor.
Credit or Price Cut: Which Fits Better?
A price cut lowers the loan amount and with it the payment. A credit lowers the cash you bring to the table but leaves the loan amount unchanged. Neither is automatically better.
A credit tends to fit a buyer who is short on cash at closing. A price cut tends to fit a buyer with cash in hand who wants a smaller loan. A lower price can also help the loan test if you are close to a leverage line, since the LTV falls.
Whichever you choose, one point stays the same. Because the cap is based on the lower of price or value, a price cut also lowers the dollar amount of the cap. Ask your loan officer to show both versions side by side.
How Mortgage Insurance and Credit Standards Fit In
Seller credits do not change the credit rules. The wholesale conventional programs I work with start at a 620 decision score, and the automated finding governs most files, with a total ratio ceiling of 50%.
Mortgage insurance is where leverage shows up. It is required above 80% LTV. You can request cancellation at 80% of the original value with a good payment history, and the servicer must end it automatically at 78%. Because an over-the-cap concession can raise the LTV used for the test, it can affect mortgage insurance and eligibility. That is another reason to stay under the cap. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
How Should You Negotiate It?
A few practical points:
- Ask early or after the inspection? Both work. Putting it in the original offer sets expectations. Asking after inspection can bundle repair and closing-cost requests. Either way, get your loan officer’s number first.
- Dollar amount or percentage? A dollar amount is clearer. A percentage adjusts if the price changes. Either should be written in the agreement, not promised verbally.
- In a multiple-offer situation, a large ask can weaken your offer. Some buyers offset it with a higher price, though a higher price raises the loan and can shift your tier. Run that math before you write the offer.
- Seller’s side. Sellers look at their net proceeds. A credit reduces what they take home just as a price cut does, so they often prefer whichever keeps the sale price higher. For tax questions, tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Why Do Credits Get Cut or Rejected?
These are the usual failure points:
1. The total exceeds the tier cap.
2. The appraisal came in low and shrank the cap base.
3. The credit was not written into the contract.
4. A contribution was not shown on the Closing Disclosure.
5. The credit was aimed at the down payment or reserves.
6. Buydown costs were not counted with other contributions.
7. The credit exceeded actual eligible costs and the extra was lost.
8. Tier math was done at one down payment, then the down payment changed.
If you work through that list before you submit the offer, most of these never come up.
Frequently Asked Questions
What is the maximum seller concession on a conventional loan?
It depends on your down payment and how you use the home. On a primary home or second home, the limit is 3% above 90% LTV, 6% from 75.01% to 90% LTV, and 9% at 75% or lower. An investment property is capped at 2%. The percentage applies to the lower of the price or the appraised value. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Can a seller credit pay for my down payment?
No. Fannie Mae does not permit interested party contributions to fund the down payment, reserves, or minimum borrower contribution. The credit can cover eligible closing costs and prepaid items. If you need help with the down payment, that is a separate question with separate rules.
Do I get cash back if the credit is bigger than my costs?
Generally no. The credit can only cover eligible costs, and the unused part is typically lost rather than paid to you. Estimate your closing costs and prepaids before you ask, then size the credit to fit.
Is a lender credit the same as a seller credit?
No. A lender credit funded by the pricing of the loan is not an interested party contribution, so it sits outside the seller cap. A lender incentive from an interested party is different and is treated as a sales concession. Your loan officer can show you which one you are looking at.
What if the home appraises for less than the price?
The cap is based on the lower of price or value, so a low appraisal shrinks the allowed credit and changes your LTV. You may need to renegotiate the price, bring more cash, or reduce the credit. Asking for less than the full cap gives you room if value comes in short.
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. Lendmire’s conventional loan programs are a good place to begin, and the same credit logic runs through them: size the ask to your costs, stay inside the tier, and let every dollar show up on the paperwork.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Freddie Mac Seller/Servicer Guide 5501.6
2. Fannie Mae Desktop Underwriter job aid: Excess IPCs
3. Fannie Mae Selling Notice, April 2024
4. Fannie Mae SEL-2025-03 Announcement
This article is part of Lendmire’s conventional loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can You Finance Closing Costs Into a Conventional Loan? · Can an Unemployed Person Get a Conventional Loan? · Can a Repeat Buyer Get a Homeready Conventional Loan?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.