Seller Concessions
What they cover, what limits apply, and when to ask
Seller concessions let a seller help cover your closing costs at the table.
But there are limits on how much they can contribute, and those limits vary by loan type.
This guide is for buyers deciding how to structure an offer.
You’ll learn what concessions cover, what caps apply by loan type, and when a price reduction beats a concession.
Knowing this before you write the offer puts you in a stronger position.
In This Article
What Seller Concessions Actually Cover
Seller concessions are costs the seller agrees to pay on your behalf at closing. The money comes out of the seller’s proceeds. From your side, that credit reduces what you need to bring to the table.
Common examples include appraisal fees, title costs, origination fees, prepaid interest, homeowners insurance, and property tax escrows. A seller can also fund a rate buydown, which we cover in a later section. What a seller cannot cover is your down payment. That rule holds across every major loan type. Closing costs, prepaid items, and rate buydowns are fair game. Down payments are not.
Concessions only count once they’re in writing. A verbal agreement to cover your title fees means nothing at the closing table. This is where deals sometimes go sideways when buyers assume a handshake locks it in. The terms must appear in the purchase contract or an addendum before closing day.
The current market makes this worth understanding. According to Redfin, 44.4% of home sales in Q1 2025 included seller concessions, up from 39.3% a year earlier. Denver specifically saw a 59.2% concession rate that quarter, making it one of the more buyer-friendly major metros in the country. If you’re buying in Colorado right now, this tool has real leverage behind it.
For buyers who want the full picture of how concessions fit into an offer, structuring a strong offer means understanding which cost you’re solving for before the contract goes in.
Seller Concession Limits by Loan Type
Each loan program sets a cap on how much a seller can contribute. Go above that number and the lender cuts the concession at closing. The excess doesn’t come to you as cash. It doesn’t go toward your down payment. It simply gets removed. Knowing your cap before you write the offer matters.
The limits below apply to the purchase price, not the loan amount. For FHA loans, a $400,000 purchase allows up to $24,000 in potential concessions at the 6% cap. A conventional loan at the same price with 5% down allows up to $12,000. There’s also a rule tied to the appraisal: if the home appraises below the contract price, the concession cap recalculates on the appraised value, not the contract price. That can reduce what the seller can legally credit you at closing.
Seller concession limits vary by loan type and, for conventional loans, by down payment size.
| Loan Type | Down Payment | Max Seller Contribution |
|---|---|---|
| Conventional (primary or 2nd home) | Under 10% | 3% of purchase price |
| Conventional (primary or 2nd home) | 10% to 24.99% | 6% of purchase price |
| Conventional (primary or 2nd home) | 25% or more | 9% of purchase price |
| Conventional (investment property) | Any | 2% of purchase price |
| FHA | Any | 6% of purchase price |
| USDA | None required | 6% of purchase price |
| VA | None required | 4% for extra concessions* |
*VA loans work differently from the other programs. The 4% cap applies specifically to extra concessions such as rate buydowns and certain debt payoffs. Normal, reasonable closing costs the seller pays on your behalf sit outside that count. So the total seller contribution on a VA loan can actually exceed 4% once standard closing costs are included. This trips up a lot of buyers and agents who assume VA caps all seller help at 4%. It doesn’t.
If you’re buying investment property with a conventional loan, the cap drops to 2% regardless of how much you put down. Fannie Mae and Freddie Mac set the rules for conventional concession caps. You can confirm current guidelines on the Fannie Mae website. A larger down payment on a primary home actually opens up more room for seller contributions, which is worth factoring in if you’re still deciding how much to put down.
What This Means for Your Situation
If you’re putting less than 10% down on a conventional loan, your concession cap is 3%. That can be tight if closing costs run high. FHA’s 6% cap gives more room, but you’re also carrying mortgage insurance. Knowing which loan you’re using before you write the offer lets your agent negotiate the right number from the start, not scramble to fix it afterward.
Using Seller Concessions to Buy Down Your Rate
One of the strongest uses for seller concessions is funding a rate buydown. Instead of applying the seller’s contribution to one-time closing fees, you use it to prepay interest and lower your rate. This can work two ways: a permanent buydown, which lowers your rate for the entire loan term, or a temporary buydown like a 2-1, which reduces your rate for the first two years.
A 2-1 buydown reduces your rate by 2 percentage points in year one and 1 point in year two. By year three, you’re at the full note rate. The cost to fund that buydown comes out of the seller’s contribution. For buyers who are stretched on monthly payments early in homeownership, this can make a real difference when it matters most.
The math is worth running before you decide. The CFPB reports that closing costs typically range from 2% to 5% of the home purchase price. In markets where a seller is willing to contribute 3% or more, you may be able to cover all closing costs and still have funds left to buy down the rate. That scenario is worth modeling before your agent presents the offer. Use the mortgage payment calculator to see how a lower rate in years one and two changes your monthly payment.
Price Reduction vs. Seller Concessions: How to Decide
Most buyers never think to ask this question. A price reduction and a seller concession both transfer value from the seller to the buyer. But they work differently, and the better choice depends on your specific situation.
How the Math Breaks Down
A price reduction lowers your loan balance. That means less interest paid over time and a slightly lower monthly payment. A seller concession lowers what you bring to closing. Your loan stays the same size. So the core question is this: are you cash-short at closing, or do you have enough cash but want a lower long-term cost?
Here’s a concrete example. Assume a $400,000 purchase price, 5% down, 30-year fixed at 6.75%:
| Scenario | Loan Amount | Cash Saved at Closing | Monthly Payment (P&I) | Interest Saved (30 yr) |
|---|---|---|---|---|
| $10K Price Reduction | $371,000 | ~$500 (lower down payment) | ~$2,404 | ~$23,000 |
| $10K Seller Concession | $380,000 | $10,000 toward closing costs | ~$2,462 | None additional |
Numbers are illustrative. Actual payments depend on your interest rate and loan terms.
If you plan to stay in the home for 10 or more years, the price reduction saves more money over time. But if your cash is tight and the concession is the only way to close, the concession makes the deal possible. Both have real value. Neither is wrong. The right choice depends on your timeline and your cash position going in.
“Most buyers I work with ask for concessions without ever running the comparison against a price reduction. Sometimes the concession is clearly the right call. But in other cases, especially for buyers who plan to stay long-term, a lower purchase price saves them more money over the life of the loan than any amount the seller could chip in at closing. The conversation is worth having before the offer goes in.”
— Reed Letson, Owner, Elevation Mortgage
Getting a precise closing cost estimate from your lender before writing the offer is what makes this decision clear. Without that number, you’re choosing between two options without knowing what you’re actually solving for.
When Seller Concessions Solved a Cash Problem for a Denver Buyer
A first-time buyer in the Denver metro was purchasing a $420,000 home using an FHA loan. She had just enough saved for the 3.5% down payment, but closing costs were going to push her over budget.
Her first instinct was to ask for a price reduction. Her agent pointed out the problem: a lower purchase price wouldn’t solve the cash shortage at closing. She still needed those dollars in her account on that specific day.
Her agent negotiated a 4% seller concession instead. It covered all closing costs and funded a 1% permanent rate buydown. She closed with money left in savings and a lower monthly payment than her original quote. The concession was the right tool because cash at closing, not long-term loan cost, was the binding constraint.
What About Realtor Commissions?
After the National Association of Realtors settlement took effect in mid-2024, buyer agent compensation created a lot of confusion. Some buyers assume a seller paying their agent’s commission counts as a concession. It doesn’t.
Seller-paid buyer agent commissions are a separate line item. They don’t count toward the concession caps listed above. So a seller could agree to pay your buyer’s agent and still offer you 3% in closing cost concessions. Those two numbers sit in different columns on the settlement statement.
What the NAR settlement changed is the transparency around how agent pay is structured. Buyer agent compensation now must be agreed upon in writing before you tour homes. But the mortgage side of the transaction treats it separately from seller concessions toward your loan costs. If your agent or lender is conflating the two, that’s worth clarifying before the offer goes in.
How to Negotiate Seller Concessions
The first step is knowing your actual number before your agent writes the offer. Your lender should give you a Loan Estimate that shows projected closing costs and prepaid items. That figure tells you exactly what you need the seller to cover. Asking for a round number like “3%” without knowing your real costs can leave money on the table or create awkwardness when the number doesn’t match what you actually need.
Market conditions shape how willing sellers are to negotiate. In a competitive market with multiple offers, asking for concessions can cost you the home. In a softer market, or with a home that has been sitting, sellers are often open to contributing. In our experience working with Colorado buyers, we’ve seen the Denver metro run close to 60% seller concession rates in recent quarters. That kind of market gives buyers real leverage, but only if they know how to use it.
Timing matters too. The cleanest approach is to negotiate concessions as part of the original offer, not after the inspection. Post-inspection concession requests are common for repair credits, where a seller offers a credit instead of fixing something. Closing cost concessions negotiate better upfront, when the seller is still in deal-making mode. Waiting until after inspection to introduce a concession request often feels like a second bite at the apple, and sellers sometimes push back hard on it.
This is the kind of detail that gets missed when buyers try to navigate the process without experienced guidance. Knowing your loan type, your down payment, and your real closing cost estimate before you sit down to write the offer is what lets your agent advocate precisely rather than approximately.
Run the Numbers Before You Start Shopping
Our first-time buyer tools let you estimate your payment, check affordability based on your income, and compare loan options side by side — before you ever talk to a lender.
Open the First-Time Buyer ToolsCommon Mistakes to Avoid
Asking for More Than the Cap Allows
We see this regularly. A buyer asks for $15,000 in concessions on a $350,000 purchase with a conventional loan and 5% down. The cap at that down payment is 3%, which is $10,500. The extra $4,500 gets cut at closing without warning. The seller thought they were helping and the buyer thought they were getting more. Neither outcome matched what anyone expected.
Not Getting the Agreement in Writing
Verbal agreements don’t survive the closing table. If the seller agrees to cover your title fees in a phone call but it never makes it into the purchase contract, your lender cannot credit it. Every concession agreement must be in writing before the inspection period ends.
Choosing Concessions When a Price Reduction Would Save More
Buyers who have enough cash to close sometimes ask for concessions out of habit. If you’re not cash-constrained and you plan to stay in the home long-term, a $10,000 price reduction typically saves more over the life of the loan than a $10,000 concession credit does at closing. Run both scenarios before the offer goes in.
Questions to Ask Your Lender
- What is my seller concession cap given the loan type and down payment I’m planning to use?
- What are my estimated closing costs so I know the exact number to put in the offer?
- Can we use seller concessions to fund a rate buydown, and what would a 2-1 buydown cost on this loan?
- If the seller’s concession exceeds my actual closing costs, what happens to the difference?
- Would a price reduction or a seller concession save me more money given how long I plan to stay?
- Does the seller paying my buyer’s agent affect my concession limit?
A Strong Offer Is More Than the Price
How you structure an offer matters as much as what you offer. Our offer strategy guide walks through what actually makes a seller say yes in a competitive market.
Read the Offer Strategy GuideFrequently Asked Questions
No. Seller concessions cannot fund your down payment. They cover closing costs, prepaid items like property taxes and homeowners insurance, and rate buydowns. Your down payment must come from approved sources such as personal savings, gift funds, or qualifying assistance programs. This rule applies across FHA, VA, USDA, and conventional loans without exception.
Your lender will reduce the concession to match your actual costs. The excess doesn’t come to you as cash and it can’t go toward your down payment. This is why getting a precise closing cost estimate from your lender before writing the offer matters. Asking for more than you need doesn’t put extra money in your pocket at closing.
The appraiser evaluates the home based on the gross purchase price in the contract, not the net after concessions. But the appraiser does see the contract, including any concessions listed. Very large concessions can signal that the price was inflated to absorb them, which can factor into the appraisal. If the home appraises below the contract price, the concession cap also recalculates on the appraised value, which can reduce what the seller can legally credit you.
Not exactly. VA loans cap extra concessions like rate buydowns and certain debt payoffs at 4% of the purchase price. But normal, reasonable closing costs the seller pays on your behalf sit outside that 4% count, so total seller contributions on a VA loan can exceed 4%. FHA applies a flat 6% cap to all seller contributions regardless of what they cover.
Yes. In a market with multiple competing offers, asking for concessions may cost you the home. Sellers in that position tend to favor clean offers. In a softer market or with a home that has been sitting, concession requests are common and usually accepted. Your agent can help you read local conditions before deciding whether to include a concession request in your opening offer.
