What is the difference between a seller concession and a price reduction?

A price reduction lowers the purchase price, which lowers your loan amount and monthly payment. A seller concession keeps the price the same but redirects a set dollar amount of the seller's proceeds toward your closing costs, prepaids, or a rate buydown. Concessions help when your obstacle is cash to close; a price cut helps when your obstacle is the monthly payment or appraisal.

Can seller concessions cover my down payment?

No. On every major loan program, interested-party contributions can pay closing costs, prepaid taxes and insurance, discount points, and rate buydowns — but never the borrower's minimum required down payment. That has to come from your own funds, a documented gift, or an approved down payment assistance program.

How much can a seller contribute on a conventional loan?

It depends on your down payment. Under 10% down caps the concession at 3% of the price, 10% to 25% down allows up to 6%, and more than 25% down allows up to 9%. Investment properties are capped at 2% regardless of down payment.

What happens if the seller agrees to more than the limit?

The lender only counts concessions up to the program cap. Any excess is disallowed — it cannot be applied to your costs and the seller does not simply hand you the difference in cash, because cash back to the buyer at closing is prohibited. Excess funds usually get renegotiated into a price reduction instead.

Do seller concessions affect the appraisal?

They can. Appraisers are told to note sales concessions and, when the local market shows concessions inflate prices, to adjust value accordingly. If concessions push the contract price above what comparable sales support, the appraisal can come in low and the concession may have to shrink.

Are seller concessions taxable income to the buyer?

Generally no. A seller credit toward closing costs is treated as a reduction in your cost of buying the home, not as income. It can lower the cost basis of the property for some items. Confirm the specifics of your situation with a tax professional, since treatment varies by what the credit paid for.

Can I use a seller concession to buy down my interest rate?

Yes. A concession can pay for discount points (a permanent buydown) or fund a temporary buydown such as a 2-1. This is often more valuable than a small price cut because it directly lowers your payment, but the buydown cost still has to fit inside your loan program's concession cap.

Seller Concessions: How to Get Your Sellers to Pay Closing Costs

A seller concession redirects part of the seller's proceeds to cover your closing costs, prepaids, or a rate buydown — without you bringing more cash. The catch: every loan program caps how much a seller can contribute, and the appraisal can claw it back.

TL;DR

A seller concession (also called an interested-party contribution, or IPC) is money the seller agrees to put toward your closing costs, prepaid escrows, discount points, or a rate buydown — not your down payment.
Limits by loan type: conventional is 3% to 9% of the price depending on down payment; FHA and USDA both cap at 6%; VA caps "seller concessions" at 4% but allows unlimited payment of the buyer's closing costs on top of that.
Concessions help when your obstacle is cash to close, not the monthly payment. To lower the payment, a price cut or a rate buydown does more.
The appraisal can limit a concession: if the credit pushes the contract price above comparable sales, the loan is sized off the lower appraised value.
You can only use a concession up to what you actually owe — a seller cannot hand you cash back above your legitimate costs.

What a seller concession actually is

When you buy a home, you owe two buckets of money at the table: your down payment (a percentage of the price) and your closing costs (lender fees, title, appraisal, recording, and prepaid property taxes and homeowners insurance that fund your escrow account). Closing costs commonly run 2% to 5% of the purchase price.

A seller concession is a line in the purchase contract where the seller agrees to pay a defined amount of your closing costs out of their sale proceeds. The price on paper stays the same; the seller nets less. For a buyer who has enough for the down payment but is thin on the extra cash for closing, this is the difference between closing and walking.

Lenders call these interested-party contributions because the money comes from someone with a stake in the sale closing — the seller, but also the builder, the real estate agent, or an affiliated party. All of them count against the same cap.

The rule that trips up first-time buyers: concessions can never pay your minimum required down payment. On a 3.5%-down FHA loan, that 3.5% has to come from your own funds, a documented gift, or an approved assistance program. The seller's money only touches the closing cost bucket.

The contribution limits by loan type

This is the part that matters most, because a concession written above the cap is partly wasted. Here is where each program draws the line.

| Loan type | Maximum seller/IPC contribution | Notes | | --- | --- | --- | | Conventional, primary/second home, under 10% down | 3% of price | Set by Fannie Mae / Freddie Mac | | Conventional, primary/second home, 10%–25% down | 6% of price | | | Conventional, primary/second home, over 25% down | 9% of price | | | Conventional, investment property | 2% of price | Any down payment | | FHA | 6% of price | Above 6% triggers a dollar-for-dollar price reduction in the lender's eyes | | USDA | 6% of price | Rural Development guideline | | VA "seller concessions" | 4% of price | Applies to items like prepaids, buydowns, paying off debt — see below |

A worked conventional example. You buy at $400,000 with 5% down ($20,000). Because you are under 10% down, your concession cap is 3% of $400,000 = $12,000. If your total closing costs and prepaids come to $11,000, the seller can cover all of it and you are left bringing only your $20,000 down payment. If you had put 15% down, the same house would allow up to 6% — $24,000 — in concessions.

The VA nuance. VA is the most generous and the most misunderstood. Lenders can pay your closing costs on a VA loan without any of it counting as a "seller concession." The 4% VA concession cap applies to a specific list — prepaid taxes and insurance, funding-fee payment, temporary buydowns, or paying off a buyer's debts. So a VA buyer can often get closing costs covered and a 4% concession stacked on top. See our VA loan overview for how the funding fee fits in.

Always confirm your exact cap against the down payment you are actually making — our affordability calculator can show how a smaller cash-to-close changes what you can afford.

What concessions can and cannot pay

Inside the cap, concessions are flexible. Outside a few hard rules, they are not.

Concessions CAN pay:

Lender fees (origination, underwriting, processing)
Third-party fees (appraisal, title, settlement, recording)
Prepaid property taxes and homeowners insurance (your escrow cushion)
Discount points for a permanent rate buydown
A temporary buydown such as a 2-1 or 1-0
The upfront mortgage insurance premium (FHA UFMIP, USDA guarantee fee)

Concessions CANNOT:

Cover any part of your minimum required down payment
Be paid back to you in cash at closing
Exceed your actual costs — if the seller agrees to $10,000 and your costs are $8,000, only $8,000 applies and the rest is lost (or renegotiated)

That last point is the most common source of disappointment. A concession is a reimbursement for real costs, not a rebate. If you negotiate a big credit and your costs come in lower than expected, the surplus does not become spending money — regulators prohibit cash back to the buyer at the table. The fix is to route surplus into a rate buydown or prepaying more of your escrow, both of which are legitimate costs.

Concessions vs. a price reduction: which to ask for

Buyers often frame the choice as "should the seller drop the price or give me a credit?" They solve different problems.

| Your obstacle | Better ask | Why | | --- | --- | --- | | Not enough cash to close | Seller concession | Keeps cash in your pocket today | | Monthly payment too high | Price reduction or buydown | Lowers the loan balance / rate long term | | Appraisal risk | Price reduction | Lowers the number that has to appraise | | Want a lower rate | Concession funding points/buydown | Directs seller money at the rate |

A comparison scenario. Consider a $300,000 purchase and a seller willing to give up $9,000 of value either way.

As a price cut to $291,000: with 10% down your loan drops by about $8,100, cutting your payment by roughly $50 a month at a 6% rate. But you still owe your full closing costs in cash.
As a $9,000 concession: your price and loan stay at $300,000, but $9,000 of your closing costs and prepaids are covered — often meaning you bring several thousand dollars less to the table. Your payment is unchanged, but you actually close.

For a cash-constrained first-time buyer, the concession usually wins because it removes the barrier that is actually stopping them. For a buyer with plenty of reserves who plans to keep the loan a decade, the price cut (or a permanent buydown) compounds better over time. If you want to route the seller's money into the rate, read our discount points guide and our temporary buydowns explainer.

Using a concession to buy down your rate

This is the highest-leverage move in a market where a buyer has just landed a home and wants to shave the payment. Instead of taking a credit that only offsets one-time fees, a buyer can point the seller's money at the interest rate.

Two ways to do it:

Permanent buydown (discount points). One point is 1% of the loan amount and typically lowers the rate by roughly 0.25%. On a $257,000 loan, one point is about $2,570. A seller concession that covers two points can shave the rate for the entire life of the loan.
Temporary buydown (2-1). The concession funds an escrow that lowers your rate by 2 percentage points in year one and 1 point in year two, then it settles at the note rate. This front-loads relief while your income ramps.

Either way, the buydown cost counts against your concession cap. On the Salt Lake City style deal circulating this week — roughly $257,000 at 5.95% — a buyer whose closing costs were already light could ask the seller to redirect part of a concession into points and push that rate down further, provided the total stayed under the program cap and the home appraised. Frame the request in your offer as a specific dollar amount toward closing costs and rate buydown, not a vague "help with costs."

How the appraisal can shrink your concession

Here is the mechanism that surprises people. Appraisers are instructed to identify sales or financing concessions and account for their effect on price. Fannie Mae's appraisal guidelines direct the appraiser to note concessions and adjust comparable sales when the market shows concessions inflate contract prices.

The practical risk: if a seller raises the price to fund a concession — say, listing at $410,000 instead of $400,000 so they can hand back $10,000 — the appraiser may conclude the home is only worth $400,000. The lender then sizes your loan off the lower of price or appraised value. You are left to cover the gap, renegotiate, or shrink the concession. Our appraisal gap article walks through how the loan estimate reflects value, and the conforming limit lookup confirms the loan size your county allows before any of this.

The takeaway: a concession works cleanly when it fits inside a price the comps already support. It gets messy when buyer and seller inflate the price to manufacture one.

How to actually ask for a concession

Concessions live in the purchase contract, so they are negotiated up front, not discovered at closing.

Get a real number first. Ask your loan officer for an itemized estimate of closing costs and prepaids so you request the right amount. Our guide on how to read a loan estimate shows which lines a concession can touch.
Write it as a dollar figure. "Seller to credit buyer $9,000 toward closing costs, prepaids, and rate buydown" is cleaner than a percentage the title company has to compute.
Stay under your cap. Confirm your program's limit for your down payment before you write the offer — an over-cap request just gets trimmed.
Mind the appraisal. In a balanced or buyer's market, sellers often accept concessions without a price bump. Ask for the concession at a price the comps support.
Compare loan types. FHA and USDA both allow 6%, which can matter if your closing costs are heavy. See FHA and conventional program pages, or your state's options such as Utah conventional loans.

A licensed loan officer runs these numbers against your exact scenario before you submit an offer. If you do not have one yet, verify any officer's license through NMLS before you share documents.

Sources & verification

Disclosure

MLO Finder is a directory of mortgage loan officers, not a lender. We don't originate loans, set rates, or guarantee approval. Verify any loan officer's current licensing through NMLS Consumer Access before working with them. Information here is educational and not personalized financial advice — consult a licensed loan officer or financial planner for guidance specific to your situation.

Seller Concessions: How to Get Sellers to Pay Your Closing Costs