Seller Concessions: The Credit You Can’t Use, and How to Write the Offer So You Can
A seller concession is money the seller agrees to put toward your side of the closing table. It sounds simple, and the negotiation usually is. What isn’t simple is what happens to that money once it reaches underwriting — where three separate rules decide how much of it you actually get to use, and where a concession written the wrong way quietly evaporates or, worse, changes your loan.
The seller concessions calculator answers the total-cost question: given a fixed dollar amount, is it worth more as a price cut, a permanent rate buydown, a temporary buydown, or a closing-cost credit? This article is about the step before that. It’s about writing the concession into the offer so that whichever form you choose, the full amount survives contact with the file.
- Conventional seller credits are capped as a percentage of price, and the cap depends on your down payment: 3% under 10% down, 6% from 10% to 25%, 9% above 25%. FHA is 6%.
- A credit cannot fund your down payment. It can only offset closing costs, prepaids, and financing costs like points.
- Credit you don’t use is forfeited. It doesn’t reduce the loan and it doesn’t come back as cash.
- A credit over the cap gets reclassified: the price is adjusted down for underwriting and LTV is recalculated. That can change your program, your PMI, or your approval.
Rule one: the cap is set by your down payment, not the seller’s generosity
Fannie Mae’s Selling Guide (B3-4.1-02) calls these interested party contributions — anything paid toward the buyer’s costs by someone with a financial interest in the sale closing, which means the seller, the builder, or either agent. The limit is a percentage of the lower of price or appraised value, and it steps with loan-to-value:
| Occupancy | LTV / CLTV | Maximum contribution |
|---|---|---|
| Primary residence or second home | Above 90% (under 10% down) | 3% |
| 75.01% to 90% (10% to 25% down) | 6% | |
| 75% or less (more than 25% down) | 9% | |
| Investment property | Any | 2% |
Fannie Mae Selling Guide B3-4.1-02, conventional loans. FHA permits up to 6%. VA limits certain concessions to 4% of value, with customary closing costs treated separately.
The number people remember is 6%. The number that applies to a first-time buyer putting 5% down is 3%. On a $450,000 purchase that’s a $13,500 ceiling, not $27,000, and a listing agent who’s used to 6% on move-up buyers will write an offer that blows through it without noticing. Know your tier before the number goes on paper.
Rule two: it can’t touch the down payment
This is the one that surprises buyers most. A seller credit can pay your closing costs, your prepaid taxes and insurance, your escrow deposit, and your discount points. It cannot pay any part of your down payment, cannot count toward your reserves, and cannot satisfy the minimum contribution your loan program requires from your own funds.
So a buyer with $25,000 saved, facing $15,000 in closing costs on a 5%-down purchase, does not get to negotiate a $15,000 credit and put all $25,000 down. The credit offsets the $15,000 of costs; the down payment is still the down payment. The credit expands what you can afford to close, not what you can afford to buy. Those are different constraints and the calculator treats them separately for that reason.
Rule three: whatever you don’t use, you lose
A closing-cost credit is exactly that — a credit against costs. If your actual closing costs and prepaids come to $11,000 and the contract says the seller contributes $15,000, the $4,000 difference is not refunded, is not applied to principal, and cannot be redirected at the table. It stays with the seller. You negotiated for it and got nothing.
This is why the calculator flags forfeited credit as a line item. It’s also the most common structural mistake in offers: the buyer’s agent asks for “$15,000 toward closing” because it sounds like a round, defensible number, without anyone having priced the closing costs first. Get the Loan Estimate, or at least a lender’s worksheet, before the concession amount is set. Size the credit to the real costs. Then, if the seller will still give more, take the remainder as a price reduction or as points — both of which can absorb dollars a credit can’t.
Everything above that line is forfeited
Rule four: over the cap, the concession stops being a credit
If the contribution exceeds the applicable limit, the Selling Guide reclassifies the excess as a sales concession. The consequence is mechanical: the sales price is adjusted downward by the excess for underwriting purposes, and the LTV is recalculated against the reduced price.
Walk through what that does. A $450,000 purchase at 5% down is a $427,500 loan at 95% LTV. If the seller contributes $20,000 — 4.4%, over the 3% cap by $6,500 — underwriting treats the price as $443,500. The same $427,500 loan is now 96.4% LTV. Depending on the program that can mean higher mortgage insurance, a pricing adjustment, or ineligibility for the loan as structured. The buyer didn’t get a bigger credit. They got a smaller house on paper and a worse loan.
The fix is to move the excess into the price before it gets to underwriting: negotiate $13,500 toward costs and $6,500 off the price, and the file is clean. Same dollars from the seller, no reclassification. This is the single most useful thing a buyer’s agent can know about concessions and it is routinely missed.
What the appraisal sees
Every concession must be disclosed to the appraiser, and an undisclosed contribution makes the loan ineligible for delivery. That’s not the interesting part. The interesting part is how the two main structures interact with value.
A price reduction lowers the contract price. If the house was going to appraise at $450,000 and you buy it for $440,000, the appraisal has room. A closing-cost credit leaves the price at $450,000 and puts $10,000 on the seller’s side of the ledger; the appraiser sees a $450,000 sale with a concession and, in a soft market, may treat the true value as the net figure. On a tight appraisal, the credit structure carries more risk of coming in low than the price-cut structure does. It’s not decisive on its own, but on a purchase where the comps are thin it belongs in the decision.
Putting it in the offer
Get the costs priced
A lender worksheet with real closing costs, prepaids, and escrow deposits. Without this number you can’t size the credit and you will either leave money on the table or exceed the cap.
Confirm the cap for your LTV
3, 6, or 9%. If you’re near the 10% or 25% down thresholds, a small change in down payment moves the cap by a full tier.
Split by purpose
Credit up to actual costs. Remainder as price reduction or explicitly as points. Don’t write one lump number and hope the closer sorts it out.
Use the calculator on the split
Once you know how much survives as credit, the calculator tells you whether the rest is worth more as price or as rate over your holding period.
The seller doesn’t care which structure you pick
Worth remembering in the negotiation: the seller nets the same amount whether the $15,000 comes off the price or goes toward your costs. Their indifference is your flexibility. The only party for whom the structure matters is you — and the structure is decided by three rules in a guideline the seller has never read. Write the offer with those rules in front of you, and the concession you negotiated is the concession you get.