Can the Seller Pay Closing Costs on a Conventional Loan?
Asking the seller to cover some of your closing costs is a common negotiating strategy — and it is fully allowed on conventional loans. But there are firm limits on how much they can contribute, and exceeding those limits can create problems at closing.
What are seller concessions?
Seller concessions — called interested party contributions (IPCs) under agency guidelines — are funds the seller, builder, or real estate agent contributes toward the buyer’s closing costs. They can cover lender fees, title fees, prepaid interest, escrow deposits, and other allowable costs. They cannot be used to make the down payment.
Maximum seller concession limits
| Property / Occupancy | LTV / CLTV | Max Seller Contribution |
|---|---|---|
| Primary residence or second home | Greater than 90% | 3% |
| Primary residence or second home | 75.01%–90% | 6% |
| Primary residence or second home | 75% or less | 9% |
| Investment property | All LTV/CLTV ratios | 2% |
What happens if the seller contributes too much?
Excess contributions above the allowable limit must be deducted from the purchase price for underwriting purposes. This reduces the value the lender uses, which can affect your LTV and loan eligibility. Structure the contract correctly from the start.
How to use seller concessions strategically
When a property has been sitting or the seller is motivated, asking for 2–3% in seller concessions is a reasonable negotiating tool. On a $750,000 purchase with a 5% down payment (95% LTV), the seller can contribute up to 3% — that is $22,500 toward your closing costs, making a significant difference in cash needed at closing.
One home, three down payments (illustrative example, not a quote)
| Down payment | Loan-to-value | Cap | Maximum credit on $600,000 |
|---|---|---|---|
| 5% ($30,000) | 95% | 3% | $18,000 |
| 15% ($90,000) | 85% | 6% | $36,000 |
| 25% ($150,000) | 75% | 9% | $54,000 |
These are ceilings, not targets. A seller credit also cannot exceed your real closing costs and prepaids, so the usable amount may be smaller than the cap.
How to write the request
- Ask for a credit toward buyer’s closing costs rather than a lower price when the price is already firm. Both can save you cash, but they work differently.
- State a percentage or dollar amount in the purchase contract, and let your loan officer confirm it fits under the cap.
- Let us size the request after we have a current estimate of your costs, so you do not ask for too much or leave money on the table.
Common mistakes
- Confusing a seller credit with a lender credit. A lender credit is a pricing choice tied to the rate; a seller credit comes out of the seller’s proceeds.
- Counting on a credit to cover the down payment. It cannot.
- Forgetting that a seller-funded rate buydown shares the same cap with other credits.
- Adding a repair credit on top of the concession without telling the lender, which can push the total over the limit.
Documents and timing
The credit belongs in the purchase contract or an addendum, and it appears on the Loan Estimate and Closing Disclosure as a seller credit. If the number changes after a negotiation, such as a repair request that turns into a credit, tell your loan officer right away so the file can be updated. Changes to the amount or structure can require a revised disclosure, and under the CFPB TRID rule certain changes reset the 3-day wait before closing, so late surprises cost time.
Frequently asked questions
What happens if closing costs come in lower than the credit?
The excess is not paid to you. The credit is limited to actual costs, so the extra simply does not get used.
Does a seller credit affect the appraisal?
The appraiser is told about concessions and may adjust for them. If the credit is above the cap, the excess is deducted from the price for underwriting.
Can the listing agent’s commission contribute?
An agent is an interested party, so any amount they credit to you counts toward the same limit.
Related guides
- Using concessions to fund a 2-1 buydown
- Pairing concessions with down payment assistance
- Making a smart offer
- Planning for closing costs
Key takeaways
- Seller contributions are capped at 3%, 6%, or 9% depending on LTV — lower LTV allows more.
- Investment properties are limited to 2% seller contribution at all LTV levels.
- Excess contributions above the limit must be deducted from the purchase price.
- Seller concessions can cover closing costs and prepaids — but not the down payment.
- On a 90%+ LTV primary residence purchase, the max seller contribution is 3% of the price.
- Combining seller concessions with DPA programs can significantly reduce out-of-pocket costs.
- The same $600,000 purchase allows 3%, 6%, or 9% depending on how much you put down.
- A seller credit cannot exceed your actual closing costs and prepaid items.
- Temporary rate buydowns paid by the seller count toward the same cap.
Ready to explore your conventional loan options? Lendia can walk you through what you qualify for and find the right program for your goals.