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What Homebuyers Should Know About Seller Concessions

Seller concessions are closing costs that the seller has agreed to pay on your behalf. Sometimes you can ask the seller for a specific dollar amount, otherwise they may simply pay a percentage. It's important to note that each loan type has specific limits on not only how much is allowed, but also on what they can be used for. Here are some examples we can walk through together:

*An important fact to note, if you do receive seller concessions, the appraisal must align with the sales price of the home. If the value comes in lower, the sales price will need to be reevaluated. Your agent and the sellers agent will work together to get this handled*

FHA Loans:

Allows 6% of the sales price or appraised value (whichever is lower)


Conventional Loans (Fannie Mae and Freddie Mac):

  • Primary residence or Second homes with less than 10% down allows for 3%*

  • Primary residence or Second homes with 10%-25% down allows for 6%*

  • Primary residence or Second homes with 25% down or more allows for 9%*

  • Investment homes with any amount down allows for 2%*


VA Loans:

The seller may contribute up to 4% of the sale price, plus reasonable and customary loan costs on VA home loans. Total contributions may exceed 4% because standard closing costs do not count toward the total.

According to VA guidelines, the 4% rule only applies to items such as:

  • Prepayment of property taxes and insurance

  • Appliances and other gifts from the builder

  • Discount points above 2% of the loan amount

  • Payoff of the buyer’s judgments and debts

  • Payment of the VA funding fee

For example, a buyer’s core closing costs for things like appraisal, loan origination, and the title equal 2% of the purchase price. The seller agrees to prepay taxes, insurance, the VA funding fee, and a credit card balance equal to 3% of the sales price.

This 5% contribution would be allowed because 2% is going toward the core loan closing costs.


USDA Loans:

6% of the sales price or appraised value (whichever is lower)


Some awesome ways to apply your seller concessions:

  • Rate Buy-Downs (i.e. you can buy your rate down for the first year of homeownership, and then it will increase to what the note rate is the year after)

  • Rate Discount Points (i.e. you can buy down your rate to something cheaper)

  • For Government Loans (FHA, VA, and USDA) pre pay your up front mortgage insurance premiums

  • Pay your prepaids (homeowners insurance, property taxes, possibly HOA fees if applicable)

  • Pay off your consumer debt (VA only)

So, now that you know the who, the what, and the how, here are some key points to make note of:

  • In the end you're asking a pretty big ask, so be sure to work closely with your loan officer and real estate agent so you can come up with the best plan of action

  • Sometimes the seller may not want to pay, and that's okay! If you're stressing about closing costs, talk to your loan officer and they can help guide you on programs you may qualify for. You never know unless you ask! :)


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