Seller Concessions
When buying a home, there is a practice known as the seller concession, which permits an FHA home loan to move forward with the seller paying some of the closing costs on behalf of the borrower. Seller concessions are limited to six percent of the sale price of the home and while the concessions can be used to pay some of a borrower’s closing costs, these funds can never be used as a down payment for an FHA mortgage. In the haggling process, the seller and buyer might come to an agreement where the seller accepts an offer on the property that is higher in return for paying the closing costs for the buyer.
This is a negotiation tactic that can help the buyer choose to buy that particular home, especially if the borrower also has down payment assistance coming from another source.
The incentive to buy the home includes an out-of-pocket payout from the buyer that is potentially much lower when the seller is helping and there is also down payment assistance. But if you are negotiating the purchase of a home with an FHA mortgage, you should know the FHA loan rules for the loan amount and how the maximum loan is calculated. In cases where a seller offers to accept a higher offer in return for paying the closing costs, the appraisal will be the determining factor as to whether this tactic works or not.
Why? FHA loans require the loan amount to be determined in part by the asking price or the fair market value of the home, whichever is lower. That means that if your seller is prepared to accept your higher offer in exchange for making the seller concessions, the appraisal cannot be a lower amount than your offer on the home, or else it’s back to the drawing board. If your offer is lower than the appraised value of the home, the seller concessions and seller-paid closing costs (up to the cap on such concessions, six percent of the sales price or less) tactic could work. But if the appraisal says the home is worth less than your offer to the seller, the smaller loan amount will apply.
Lender standards, state law, and other variables may also factor into such transactions. Ask your lender about options if you are considering seller concessions, and how to make those options work for your FHA home loan.
💰 Seller Concession Limits by Loan Type
1. FHA Loans
✅ Limit: 6% of the lesser of the purchase price or appraised value.
That 6% can cover closing costs, prepaid expenses, discount points, etc.
👉 Anything above 6% is considered an inducement to purchase and must reduce the sales price.
2. Conventional (Fannie Mae / Freddie Mac)
The limits vary based on down payment (or LTV — loan-to-value ratio):
- Less than 10% down: 3% maximum
- 10% to 25% down: 6% maximum
- More than 25% down: 9% maximum
- Investment property: 2% maximum
3. VA Loans (Veterans Affairs)
✅ Limit: 4% of the purchase price for “seller concessions.”
BUT — the VA defines “seller concessions” narrowly (things like paying VA funding fees, paying off debts, gifts, etc.).
There’s no cap on normal closing cost contributions as long as they’re reasonable and typical for the area.
4. USDA Loans
✅ Limit: 6% of the purchase price.
Like FHA, this can go toward typical closing costs, prepaid items, and other allowable expenses.
The content on this website and blog is provided by Connie and Bill Dolloff, REALTORS® with eXp Realty, and is intended for informational and educational purposes only. The information shared is believed to be accurate at the time of posting but may change without notice due to market conditions, law, or other factors. This content does not constitute legal, financial, or real estate advice. Readers should always consult directly with a qualified real estate professional, attorney, or financial advisor before making real estate decisions. We are licensed real estate professionals in New Hampshire and Maine, and our services are offered only in jurisdictions where we are properly licensed. The opinions expressed in blog posts are solely those of the authors and do not necessarily represent the views of eXp Realty or any affiliated organization. Use of this website and its information is at your own risk. Dolloff Homes and eXp Realty assume no responsibility or liability for any errors, omissions, or outcomes related to the use of this material.