Seller credits can help a buyer preserve cash, lower the interest rate, or cover eligible costs at closing. But the maximum amount depends on the loan program, and conventional limits can change significantly based on the buyer’s down payment. That distinction matters when you are writing an offer. A credit that works for a buyer putting 10% down may not work for a buyer putting 5% down. A credit structure that appears acceptable on the purchase contract may also need to be revised if the appraisal or final Closing Disclosure changes the available room. What Changed Seller credits, also called seller concessions or interested party contributions, are negotiated amounts the seller contributes toward eligible buyer expenses. Common examples include: Loan origination and other lender charges Title, escrow, settlement, and recording fees Discount points Permanent or temporary rate buydowns when permitted Prepaid property taxes and homeowners insurance Escrow deposits Certain inspections, repairs, or home warranty arrangements, depending on the program and how the item is documented They generally cannot be used to fund the buyer’s minimum required down payment, provide cash back beyond eligible costs, or cover personal expenses unrelated to the transaction. Mortgage Research and RE/MAX both describe seller concessions as assistance for eligible closing costs and prepaid expenses, not a substitute for the buyer’s required down payment. (Mortgage Research; RE/MAX) The major differences appear by loan type. Conventional loans For conventional loans under standard Fannie Mae and Freddie Mac guidelines, the seller-credit limit for a primary residence or second home depends on the buyer’s down payment: Less than 10% down: Up to 3% of the sales price, subject to applicable value and lender rules 10% to 24.99% down: Up to 6% 25% or more down: Up to 9% Investment property: Up to 2%, regardless of down payment These limits apply to the total interested party contributions, not necessarily just one seller credit. Other contributions from an interested party may count toward the same limit. Second homes generally follow the primary-residence tiers, but confirm the treatment with the lender before writing the contract. The applicable calculation may also be limited by the lower of the purchase price or appraised value. The key point is simple: the buyer’s down payment can change the available credit tier. FHA loans FHA generally allows seller contributions of up to 6% of the sales price, subject to FHA and lender requirements. The credit may help with eligible closing costs, prepaid items, discount points, and certain rate-buydown structures. FHA also treats some items differently from conventional financing, so the lender should review any unusual concession before the offer is finalized. The seller cannot fund the borrower’s required minimum 3.5% down payment through a seller credit. The buyer may have other permitted sources for the down payment, such as an approved gift or assistance program, but the seller credit itself is not the source of that required down payment. VA loans VA financing uses a different framework. The seller may pay the buyer’s standard, customary closing costs without a specific percentage limit, provided the charges are reasonable and permitted by the lender. In addition, VA places a 4% cap on certain seller concessions. Items that may fall within the 4% category include: Prepaid property taxes Prepaid homeowners insurance The VA funding fee Certain debts or obligations paid on behalf of the buyer Other incentives that are not treated as ordinary closing costs The VA funding fee is normally a buyer obligation. It may be financed into the loan, paid at closing, or waived for eligible veterans who meet the applicable exemption requirements. Do not treat the VA 4% rule as a cap on every seller-paid closing expense. Standard closing costs and additional concessions are analyzed differently. Have the lender classify each item before the contract is signed. USDA loans USDA generally permits seller contributions of up to 6% of the purchase price for eligible closing costs and other allowable expenses. The buyer must still meet USDA income limits, and the property must be located in an eligible rural area under the program’s rules. A seller credit does not replace those eligibility requirements. As with the other programs, the credit cannot simply become cash in the buyer’s pocket if the buyer’s eligible costs are lower than the credit. Any unused amount may need to be reduced or redirected to another allowable cost. Why It Matters Knowing the limit before preparing an offer helps agents avoid three common problems: requesting too much, leaving available assistance unused, or creating a credit that cannot be applied at closing. Consider the difference between two conventional buyers purchasing the same $400,000 home: A buyer putting 5% down may be limited to a 3% credit, or approximately $12,000 before accounting for actual eligible costs and other program rules. A buyer putting 10% down may qualify for a 6% credit, or approximately $24,000 under the standard tier. That additional down payment may materially expand the available seller-credit ceiling. However, the buyer should not increase the down payment solely to obtain a larger credit without reviewing the full cash-to-close and monthly-payment impact. The credit must also be useful. If the buyer has only $9,000 in eligible costs and the contract requests $15,000, the buyer generally cannot receive the unused $6,000 as unrestricted cash. The parties may need to reduce the credit, apply it to approved discount points, or restructure the purchase terms. The same issue applies when the appraisal comes in below the contract price. If the credit is calculated against the lower value, the maximum permitted amount may change. This is one reason to avoid treating the initial estimate as final. For agents, the practical lesson is to involve the lender before the offer is written, not after the contract is already under pressure. Example Scenario Suppose a buyer wants to purchase a $350,000 home using conventional financing with 5% down. The buyer asks the seller for a 5% credit to help cover closing costs and buy down the rate. The standard conventional tier for a primary residence with less than 10% down is 3%. On a $350,000 purchase, that represents a potential maximum of approximately $10,500, subject to the lender’s calculation and the buyer’s actual eligible costs. The requested 5% credit would exceed the standard limit. The buyer and seller could consider several alternatives: Reduce the credit to the permitted amount Increase the down payment to 10%, if financially appropriate, to move into the 6% tier Use a lower credit and negotiate a separate price adjustment Apply the permitted credit to eligible closing costs, prepaids, or discount points Review whether another loan program better fits the buyer’s overall situation Increasing the down payment is not automatically the best answer. It may reduce the buyer’s reserves, affect the monthly payment, or change mortgage insurance costs. The lender should compare the complete scenarios rather than focusing only on the credit percentage. Now compare that with a VA buyer. The seller may be able to pay standard buyer closing costs without the same percentage cap, while certain prepaid items and the funding fee may be evaluated under the separate 4% concession limit. The contract should identify the intended use of the funds clearly enough for the lender and closing agent to classify them correctly. Tips Use this process to reduce surprises. Identify the loan program early. Do not assume every buyer has the same seller-credit capacity. Confirm whether the buyer is using conventional, FHA, VA, USDA, or another product. Confirm occupancy and property type. A primary residence, second home, and investment property may have different conventional limits. Investment properties are generally restricted to 2% under the standard conventional framework. Ask for the down payment percentage, not just the loan type. A conventional buyer putting 5% down is treated differently from one putting 10% down. Small changes to the down payment can affect the credit tier. Separate standard costs from special concessions. This is especially important for VA financing. Ask the lender how prepaid items, the funding fee, buydowns, debt payments, and other incentives will be categorized. Write the credit with a clear purpose. Instead of using a vague phrase such as “seller to pay buyer expenses,” identify the intended use when appropriate: allowable closing costs, prepaid items, discount points, or an approved rate buydown. Do not promise that every repair credit is financeable. Repair requests may require a different structure, completion before closing, escrow treatment, or lender approval. Coordinate the inspection resolution with the lender. Check for unused credit. A credit cannot usually exceed the buyer’s eligible costs. Have the lender estimate whether the buyer has enough closing expenses to absorb the requested amount. Review the appraisal impact. A low appraisal may change the value used for calculating the maximum credit or create a separate issue with the purchase price. Reconfirm the structure before closing. The lender must approve the final numbers. Review the final Closing Disclosure and compare it with the contract, addenda, invoices, and any repair agreements. Disclose every contribution. Undisclosed seller-paid expenses, side agreements, personal-property incentives, or moving-cost payments can create underwriting and compliance problems. Put the terms in writing and send them to the lender. For a buyer who needs help comparing these structures, Talk to the Expert before submitting the offer. A short review can identify whether the proposed credit fits the program and the buyer’s cash-to-close needs. Bottom Line Seller-credit limits are not one-size-fits-all. Conventional: 3%, 6%, or 9% for primary residences and second homes based on down payment; 2% for investment properties FHA: 6%, with the seller credit unable to fund the required 3.5% minimum down payment VA: Standard buyer closing costs may be paid by the seller without a specific percentage limit, plus a separate 4% cap on certain concessions USDA: 6%, subject to eligible costs, income limits, rural-area requirements, and lender approval Use the program rules to build the offer, but do not stop there. Confirm the calculation before the contract is written, then review it again when the appraisal and final Closing Disclosure are available. The strongest transaction is not the one with the largest credit. It is the one where the credit is permitted, documented, fully usable, and aligned with the buyer’s cash and payment goals. Buyers who want to organize their financing before negotiating can Get Mortgage Ready.