When you’re buying a home, it’s easy to focus almost entirely on the down payment. But the down payment isn’t the only cash you’ll need at closing.
Closing costs and prepaid expenses can add thousands of dollars to the amount a buyer needs to bring to the closing table. One tool that may help is a seller concession, also known as a seller credit.
A seller concession allows the seller to contribute toward certain eligible costs associated with the purchase. Understanding how these credits work can help you and your real estate agent determine whether requesting one makes sense as part of your offer.
What Are Seller Concessions?
A seller concession occurs when the seller agrees to contribute a specific amount toward the buyer’s eligible closing costs and prepaid expenses.
For example, suppose you’re purchasing a $350,000 home and your offer includes a $7,000 seller credit.
If your loan program and closing costs allow the full credit to be used, that $7,000 can help cover eligible expenses at closing, potentially reducing the amount of your own cash needed for those costs.
Seller credits generally cannot be used to cover your required down payment or simply handed back to you as cash. The credit must be used for eligible expenses under the applicable loan guidelines.
How Much Can a Seller Contribute?
The maximum allowable seller contribution depends on the type of mortgage, occupancy, loan-to-value ratio, and other factors.
| Loan Type | Maximum Seller Contribution* | General Guidelines |
|---|---|---|
| Conventional | 2%–9% | Depends on occupancy and LTV. Primary residence/second home: 3% with LTV above 90%, 6% at 75.01%–90%, and 9% at 75% or less. Investment properties: 2%. |
| FHA | 6% | Generally up to 6% toward eligible closing costs, prepaid expenses, and other permitted financing concessions. |
| VA | 4% | VA’s 4% limit applies to defined seller concessions. Certain normal closing costs and discount points are treated separately. |
| USDA | 6% | Seller/interested-party contributions are limited to 6% of the sales price for eligible loan purposes. |
*These are general guidelines, not a guarantee that the entire percentage can be used in a particular transaction. The actual credit cannot exceed eligible costs, and program-specific rules apply.
One important point: Seller concessions are not a substitute for your required down payment. They are generally used for eligible closing costs, prepaid expenses, and other permitted costs under the applicable loan program.
Where an Experienced Realtor Can Make a Difference
Seller concessions aren’t something a buyer should simply demand from a seller.
They’re part of the overall negotiation—and this is where having an experienced Realtor can be especially valuable.
A knowledgeable Realtor understands that every property and market is different. They can evaluate the seller’s situation, the home’s time on the market, competing offers, recent price reductions, and other factors to determine whether requesting a seller credit could strengthen your overall strategy.
Homes That Have Been on the Market Longer
A seller who has had a home listed for several weeks or months may have different priorities than a seller who just listed yesterday.
An experienced Realtor can recognize those opportunities and determine whether asking for a seller credit makes sense without unnecessarily weakening your offer.
A Balanced Offer
Sometimes the strongest offer isn’t simply the one with the highest price.
Depending on the circumstances, your Realtor may be able to structure an offer that balances the purchase price with a request for seller-paid closing costs.
The goal isn’t to “get the seller to pay your expenses.”
The goal is to structure an offer that works for both sides of the transaction.
Understanding the Seller’s Priorities
Every seller has different motivations.
Some may care most about the net proceeds. Others may prioritize a quick closing, a specific closing date, or certainty that the transaction will make it to the closing table.
An experienced Realtor can help identify those priorities and negotiate accordingly.
Coordinating With Your Mortgage Lender
This is where the Realtor and mortgage lender need to work together.
Before requesting a specific seller credit, your lender should review your estimated closing costs and confirm that the proposed concession fits within your loan program’s guidelines.
That way, your Realtor isn’t negotiating for a credit that you ultimately can’t use.
Making the Most of Seller Concessions
Seller concessions can be a valuable part of a home purchase, but they’re not a negotiation trick or a way to get something for nothing.
They’re one of several tools that an experienced real estate professional may use when structuring an offer on your behalf.
Your Realtor understands the property and the seller. Your mortgage lender understands the financing and loan guidelines.
When those two professionals work together, you have a much better opportunity to structure an offer that makes sense for both your finances and the transaction.
If you’re considering buying a home in Magnolia, The Woodlands, Conroe, Spring, or elsewhere in Texas, understanding your financing options before you make an offer can help you make a more informed decision.
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Sal Trapani, Mortgage Banker & Owner, MJ Mortgage LLC, 281-608-2846 cell, sal@mjmortgagellc.com, www.mjmortgagellc.com, Magnolia, TX 77354, NMLS 1055510 / NMLS 2381195