Seller Concessions: Lower Your Closing Costs Wisely

Seller concessions are credits from the seller that pay some or all of your closing costs. The seller agrees to a higher price but gives money back at closing. Limits depend on loan type: conventional allows 3-9% based on down payment, FHA allows 6% and VA allows 4%. In buyer’s markets, sellers often offer concessions to close deals. In seller’s markets, asking for concessions weakens your offer.

What Are Seller Concessions?

The Basic Concept

The seller agrees to pay a portion of your closing costs:

Credit appears on closing disclosure
Reduces cash you need at closing
Seller nets less from the sale
Common negotiating tool

How It Works in Practice

Example:

Home price: $350,000
Seller concession: $10,000 (toward closing costs)
Your closing costs: $12,000
Cash you need: $2,000 (instead of $12,000)

What Concessions Can Cover

Can Cover	Cannot Cover
Loan origination fees	Down payment
Appraisal	Reserves
Title insurance	Post-closing expenses
Escrow prepaids	Anything above closing costs
Recording fees
Attorney fees
Survey

Seller Concession Limits

By Loan Type and Down Payment

Loan Type	Down Payment	Maximum Concession
Conventional	Less than 10%	3%
Conventional	10-25%	6%
Conventional	25%+	9%
FHA	Any	6%
VA	Any	4%
USDA	Any	6%

Investment Property (Conventional)

Occupancy	Maximum
Primary residence	Per table above
Second home	6% max
Investment	2%

Why Limits Exist

Prevents inflation:

Without limits, buyers could inflate price
Get excess “concession” as cash
Creates false equity and appraisal issues

Negotiating Seller Concessions

When to Ask

Buyer’s market:

Lots of inventory
Properties sitting unsold
Seller motivation high
Concessions common

Seller’s market:

Low inventory
Multiple offers
Concessions rare
Asking may hurt your offer

How to Ask

Include in initial offer: “Seller to pay up to $10,000 toward buyer’s closing costs.”

Or negotiate after inspection: “In lieu of repairs, seller to provide $5,000 credit.”

Structuring the Request

Fixed amount: “Seller to pay $8,000 toward closing costs.”

Percentage: “Seller to pay 3% toward closing costs.”

Up to amount: “Seller to pay up to $10,000 toward closing costs.” (If costs are less, you get what you need, not extra)

The Math Behind Concessions

Seller’s Perspective

Without concession:

Sale price: $350,000
Agent commission (5.5%): $19,250
Closing costs: $5,000
Net to seller: $325,750

With $10,000 concession:

Sale price: $360,000
Agent commission (5.5%): $19,800
Closing costs: $5,000
Concession: $10,000
Net to seller: $325,200

Difference: Only $550 less (commission on extra $10K)

Buyer’s Perspective

Without concession:

Down payment (10%): $35,000
Closing costs: $12,000
Cash needed: $47,000

With $10,000 concession:

Down payment (10%): $36,000
Closing costs paid by seller: $10,000
Cash you pay: $2,000
Cash needed: $38,000

Savings: $9,000 less cash needed

The Trade-Off

You’re financing closing costs:

Higher loan amount
Higher monthly payment
More interest over time

Example impact:

Extra $10,000 at 7%
Monthly increase: ~$67
Total over 30 years: ~$14,000 extra

When Concessions Make Sense

Good for Buyers When

Cash is limited:

Don’t have enough for closing costs
Need to preserve reserves
Prefer higher loan to higher cash outlay

Market conditions allow:

Seller’s market isn’t too hot
Property has been listed awhile
Seller is motivated

You’ll refinance later:

Can refinance to lower payment
Temporary higher loan amount
Plan to recast or pay down

Not Ideal When

You have the cash:

Lower loan amount is better
Less interest paid
Stronger equity position

Seller’s market:

Asking may lose you the house
Other offers won’t have concession
Weakens competitive position

Appraisal concerns:

Inflated price may not appraise
Creates problems at closing

Concessions vs Price Reduction

Comparison

Factor	Concession	Price Reduction
Helps with cash now	Yes	No
Lowers loan amount	No	Yes
Reduces monthly payment	No	Yes
Reduces total interest	No	Yes
Appraisal risk	Higher	Lower

When to Choose Each

Choose concession if:

Cash-strapped for closing
Need to reduce upfront costs
Can handle slightly higher payment

Choose price reduction if:

Have cash for closing
Want lower monthly payment
Long-term savings priority

Best of Both Worlds

Negotiate both: “$5,000 price reduction and $5,000 toward closing costs”

Split the benefit between immediate and long-term savings.

Concessions After Home Inspection

Common Approach

Instead of asking for repairs:

Request credit for costs
Fix things yourself after closing
More flexibility and control

Example Negotiation

Inspection finds:

$3,000 roof repair needed
$2,000 HVAC issue

Instead of: “Seller must fix roof and HVAC”

Ask for: “Seller to provide $5,000 credit toward buyer’s closing costs”

Advantages of Credit Over Repairs

Credit	Repair
You control quality	Seller chooses cheapest option
Done after closing	Delays closing for work
More flexibility	Only fixes specific issues
Can cover other costs	Only covers that repair

Appraisal Considerations

The Risk

If you add concession to price:

Home must appraise at new higher price
Appraiser bases value on comparable sales
Inflated price may not be supported

Example Problem

Market value: $350,000
Offer: $360,000 (includes $10K concession)
Appraisal: $355,000
Gap: $5,000

Now you have an appraisal gap to deal with.

Mitigation Strategies

Keep concession reasonable:

2-3% is safer than 6%
Reflects market norms
Less appraisal risk

Research comparables:

Know what homes sell for
Ensure inflated price is supportable
Work with your agent

Lender Considerations

How Lenders View Concessions

Within limits: Accepted, applied to closing costs

Exceeding limits: Not allowed, must be reduced

Cannot exceed actual costs: You can’t get cash back

Documentation Required

Concession appears on:

Purchase contract
loan estimate
Closing disclosure

Lender verifies it’s within guidelines.

State and Local Variations

Custom Varies

Area	Common Custom
Some states	Seller pays certain fees
Other areas	Everything is negotiated
New construction	Builder concessions common

Builder Concessions

New construction often includes:

Closing cost credits
Rate buydowns
Upgrade allowances
Preferred lender incentives

Can be substantial: Sometimes 3-5% or more

Frequently Asked Questions

What are seller concessions?

Credits from the seller applied to your closing costs. The seller agrees to a higher price but gives money back at closing to reduce your out-of-pocket expenses.

How much can the seller pay toward closing costs?

Limits depend on loan type and down payment. Conventional: 3-9%. FHA: 6%. VA: 4%. USDA: 6%. Higher down payments allow larger concessions on conventional loans.

Can seller concessions be used for down payment?

No. Concessions can only cover closing costs, not your down payment. The down payment must come from your own funds or acceptable gift sources.

Will asking for concessions hurt my offer?

In a competitive seller’s market, yes. Sellers may choose offers without concessions. In buyer’s markets, concessions are common and expected.

What if the concession exceeds my closing costs?

You only receive what your closing costs actually are. If you negotiate $10,000 but only have $8,000 in costs, you get $8,000. You can’t receive cash back.

Do concessions affect my interest rate?

Not directly. However, the higher loan amount (to cover the inflated price) means you pay more interest over time.

Can I ask for concessions after making an offer?

Yes, commonly done after inspection. Instead of asking for repairs, you can request a credit toward closing costs.

Are seller concessions the same as seller credits?

Yes, these terms are used interchangeably. Both refer to the seller contributing toward the buyer’s closing costs.

Discover how seller concessions can save you money.