Seller-paid closing costs: What they cover and how to negotiate them

Q: How much can a seller pay toward a buyer's closing costs?

It depends on the loan. Conventional loans allow 3% of the price with less than 10% down, 6% with 10%-25% down and 9% with more than 25% down. FHA loans allow up to 6%, VA loans up to 4% and USDA up to 6%. Concessions beyond the cap generally cannot be applied and may force a price restructure.

Q: Why would a seller agree to pay the buyer's closing costs?

Because it often nets them the same money while making the deal happen. A buyer who is cash-tight may offer full price with a 3% concession instead of a lower price. The seller's proceeds are similar, and the home sells faster. In slower markets, concessions also widen the pool of buyers who can afford to close.

Q: Is it better to ask for a lower price or seller-paid closing costs?

If you're short on upfront cash, concessions usually help more: a $9,000 credit at closing reduces the cash you need today, while a $9,000 price cut only trims your monthly payment by roughly $50-$60. If you have ample cash, the lower price wins long-term because it means less borrowed and less interest paid.

Q: Can seller concessions cover my down payment?

No. Seller concessions can pay closing costs, prepaid taxes and insurance, discount points and other settlement fees, but loan rules prohibit applying them to the down payment itself. Down payment funds must come from your own resources, eligible gifts or approved assistance programs. Any concession exceeding your actual costs is typically forfeited.

Written by Samantha SheltonNMLS 1647301Updated September 2026

Buyers and agent negotiating seller-paid closing costs with a home seller at a dining room table

Seller-paid closing costs, also called seller concessions, are fees the seller agrees to cover on your behalf at closing, negotiated into the purchase agreement and credited to you on settlement day. Every loan program caps them: conventional loans allow 3%, 6%, or 9% of the lower of sales price or appraised value depending on your loan-to-value ratio, FHA allows 6% of the sales price, and VA limits concessions to 4% of the property’s reasonable value.

A concession is not a discount on the house. It’s a credit against the cash you’d otherwise wire on closing day, and it can’t be applied to the down payment itself.

Learn how seller-paid closing costs work, including which fees a seller can cover, how the caps differ by loan program, and how to ask without weakening your offer. If you’re earlier in the process, start with our Home Buying guide.

Key takeaways:

Program caps set your ceiling: Conventional loans allow interested-party contributions of 3%, 6%, or 9% depending on loan-to-value, FHA allows 6% of the sales price, and VA limits concessions to 4% of reasonable value.
Concessions can’t touch your down payment: Fannie Mae bars interested-party contributions from funding the down payment, reserves, or the minimum borrower contribution, so a 3% conventional concession pays closing costs and prepaids only.
A credit beats a price cut when cash is tight: On a $300,000 purchase with 5% down, a $9,000 seller credit cuts your cash to close by $8,550 today, while a $9,000 price reduction trims the payment by roughly $50 – $60 a month instead.

What are seller-paid closing costs?

Seller-paid closing costs are buyer-side settlement charges the seller agrees to pay, written into the purchase agreement as a dollar amount or a percentage and applied as a credit on the closing statement. Lenders call them interested-party contributions, agents call them concessions, and the contract usually calls them a seller credit.

Seller concessions vs. the seller’s own closing costs

These are two separate columns on the settlement statement, and conflating them is the most common mistake buyers make here. The seller’s own closing costs are what they owe because they’re the seller, commissions, transfer taxes, their mortgage payoff, prorated property taxes.

A concession is different: the seller pays costs that would otherwise be yours, lender fees, the appraisal, title and settlement charges, prepaid taxes and insurance. Our guide to closing costs and what to expect as a buyer breaks that list down, and how to budget for closing costs shows how to size the number before you write an offer. Asking a seller to pay a cost they already owe wins you nothing.

What a seller credit can and can’t cover

A credit can cover loan costs, title and settlement charges, prepaid escrows, and discount points. It cannot cover your down payment. Fannie Mae states the restriction directly: interested-party contributions may not be used to make the borrower’s down payment, to meet financial reserve requirements, or to meet minimum borrower contribution requirements.

A second limit surprises buyers in underwriting: a concession can’t exceed your actual closing costs. Negotiate a $12,000 credit against $9,400 of settlement charges and the extra $2,600 doesn’t become cash in your pocket. Fannie Mae requires any amount exceeding the borrower’s closing costs to be treated as a sales concession and deducted from the sales price. Ask for what you need, not the biggest number the cap allows, the home buying process guide shows where that estimate lands.

How much can a seller pay toward closing costs?

The cap depends on your loan program and, for conventional loans, on how much you’re putting down from 2% on an investment property to 9% on a conventional loan with more than 25% down.

Loan program	Maximum seller / interested-party contribution	Measured against
Conventional, primary or second home, LTV/CLTV above 90%	3%	Lower of price or appraised value
Conventional, primary or second home, LTV/CLTV 75.01% – 90%	6%	Lower of price or appraised value
Conventional, primary or second home, LTV/CLTV 75% or less	9%	Lower of price or appraised value
Conventional, investment property, all CLTV ratios	2%	Lower of price or appraised value
FHA	6%	Sales price
VA	4%	Reasonable value established by VA

Two details there do real work. Conventional percentages run on the lower of sales price or appraised value, so a low appraisal shrinks your ceiling at the same moment it creates other problems. Which is what the home appraisal process guide is for. And the tiers key off loan-to-value, not your down payment label: 5% down puts you above 90% LTV and into the 3% tier.

What happens if the concession exceeds the cap

Nothing good. On a conventional loan, contributions above the limit are reclassified as sales concessions and deducted from the sales price, and your maximum LTV and CLTV are recalculated on that reduced figure. FHA works the same way in substance: HUD treats contributions from sellers or other interested third parties exceeding 6% of the sales price as inducements to purchase, and each dollar over the limit is subtracted from the sale price before the LTV ratio is applied.¹

VA draws its line differently, and it’s the most misunderstood of the four. VA limits concessions to 4% of the home’s reasonable value, defining a concession as anything of value added to the transaction at no additional cost to the buyer, a credit for the funding fee, payoff of the buyer’s debts, prepaid hazard insurance. A seller paying the veteran’s ordinary closing costs and market-rate discount points isn’t making a concession in VA’s sense, which is why VA buyers often get more help than 4% suggests.² USDA Guaranteed loans also permit seller-paid closing costs, but USDA sets its own limit in its guaranteed loan handbook, ask your loan officer to confirm the current cap before you build an offer around it.

Which closing costs can a seller pay for you?

A credit can be applied to essentially any buyer-side settlement charge, and four categories carry the most dollars. Your Loan Estimate names all of them, which makes it the right document to negotiate from, see the CFPB’s Loan Estimate explainer.

Lender and loan costs: Origination charges, underwriting and processing fees, the appraisal, the credit report. The cleanest targets: unambiguously yours, itemized on page 2.
Discount points: Points buy your rate down, and a seller-paid point often does more for your payment than the same dollars applied to fee lines. IRS Publication 530 says you generally treat seller-paid points as if you had paid them. Deductible in the year paid if you meet the tests in that publication, and you must reduce your home’s basis by the same amount.³
Title, settlement, and recording charges: Lender’s title insurance, the closing fee, the title search, recording costs. Our guide to choosing a title company covers what’s shoppable.
Prepaids and escrow funding: The first year of homeowners insurance, prepaid interest through month-end, and the tax and insurance cushion your lender collects, often several thousand dollars buyers forget.

Regional custom matters more than buyers expect: in some markets the seller traditionally pays for the owner’s title policy, in others the buyer does. Confirm who pays what where you’re buying before you spend leverage on a line the seller already covers, Realtor.com’s guide to seller-paid closing costs covers regional norms, and preparing to buy covers the cash side.

How to get a seller to pay your closing costs

Concessions are won on leverage, and the three reliable sources are a soft market, a stale listing, and an inspection report.

Read the market before you name a number

In a buyer’s market, a concession request is routine. In a seller’s market with multiple offers on every listing, the same request can knock you out of contention. Ask your agent for two numbers first: median days on market for that price band, and the sale-to-list ratio on recent closings. A home sitting at 60-plus days with a price cut behind it is a candidate; a home listed Thursday with four offers by Sunday is not. Our guide to negotiating a home purchase covers those signals.

Ask at full price, not below it

The most effective structure is usually a full-price offer with a defined concession, because it protects the seller’s headline number. A seller who nets $291,000 from a $300,000 sale with a $9,000 credit nets the same as one who accepts $291,000 outright, but the first version keeps a $300,000 comparable sale in the neighborhood record.

Name a specific dollar amount rather than “seller to pay buyer’s closing costs,” because an open-ended clause invites a fight at closing. Then strengthen the terms that cost you nothing: a larger earnest money deposit, a closing date built around the seller’s move, and a verified preapproval buy back the credibility you spend on the credit. Our walkthrough of how to negotiate seller concessions covers the contract language, and creating a competitive offer covers the package.

Use the inspection as your second bite

The inspection period is the cleanest leverage point in the transaction, because it produces documented, third-party evidence that the home costs more than the contract assumed. A furnace at the end of its life supports a request grounded in a number rather than a preference, and many sellers prefer writing a credit to managing repairs on a deadline.

Keep your inspection contingency intact so the request has teeth, see contingencies in home offers, work through the home inspection checklist for buyers, and read negotiating repairs after a home inspection. One caution: a repair credit still counts against your concession cap, and lenders may require safety or structural items to be fixed rather than credited.

Seller concession vs. price reduction: which is worth more?

If you’re short on cash, the concession wins by thousands today; if you have cash to spare, the price cut wins over the life of the loan. Here’s the same $9,000 on a $300,000 purchase with 5% down.⁴

	Full price with a $9,000 seller credit	$9,000 price reduction
Purchase price	$300,000	$291,000
Down payment (5%)	$15,000	$14,550
Loan amount	$285,000	$276,450
Estimated closing costs	$9,000	$9,000
Seller credit applied	−$9,000	$0
Cash needed at closing	$15,000	$23,550

The concession version needs $8,550 less cash on closing day. The price-reduction version borrows $8,550 less, trimming a 30-year payment by roughly $50 – $60 a month depending on your rate. If the concession is the only way you reach closing with savings intact, take the concession. Note that $9,000 is exactly 3% of $300,000, the conventional cap at 95% LTV, so run the number against your cap before the offer goes out, and if you’re weighing both levers, buying strategies and situations covers how they interact.

Whichever structure you choose, verify it landed. Your seller credit appears in a dedicated section on page 3 of the Closing Disclosure, and costs the seller agreed to pay for specific items may instead appear as “Seller Paid” line items on page 2. Lenders must deliver that disclosure three business days before your scheduled closing, the CFPB’s guidance on reviewing credits on your Closing Disclosure tells you to confirm the credit matches what you agreed to, and preparing for a home closing covers the rest of that review.

What Michigan buyers should know

Michigan law already puts the largest transfer-related cost on the seller, so target the lines that are genuinely yours.

Transfer taxes are already the seller’s bill: Michigan charges a state transfer tax of $3.75 per $500 of value (MCL 207.525) plus a county transfer tax of $0.55 per $500 in counties under 2,000,000 population (MCL 207.504), $8.60 per $1,000 combined. On a $300,000 sale in Waterford that’s $2,580, and state law makes the seller the party liable (MCL 207.523). Don’t spend leverage asking for it.
Recording is cheap; title and escrow are not: Michigan charges a flat $30 per recorded document (MCL 600.2567), so the dollars worth negotiating sit in lender fees, title and settlement charges, and prepaid escrows. The deed mechanics behind those charges are covered in a conveyance in real estate.
Summer and winter tax bills get prorated: Michigan property taxes run on two billing cycles, and the proration can swing your cash to close by hundreds of dollars depending on your closing date. Get that figure from your title company before you finalize a concession amount.

How Align moves your purchase to the closing table

Over the last 12 months, Samantha's loans averaged under 14 days from application to clear to close, across more than 100 loans. Your closing date is set by your purchase agreement. Her job is to have your loan ready well before it.

She handles your file herself, with a processor supporting her behind the scenes. You always know who to call, and the person who answers knows your goals.

Build your homebuyer game plan

Sources: Align Lending loan records, 12 months to October 2026.

FAQ: Seller-paid closing costs

Here are answers to common questions about seller-paid closing costs.

How much can a seller pay toward a buyer’s closing costs?

It depends on the loan program. Conventional loans allow 3% of the lower of price or appraised value above 90% loan-to-value, 6% between 75.01% and 90%, and 9% at 75% or less. FHA allows up to 6% of the sales price and VA limits concessions to 4% of reasonable value. Contributions above the cap are deducted from the sales price, and your cap depends on the loan you qualify for. Which is where the importance of mortgage preapproval shows up.

Why would a seller agree to pay the buyer’s closing costs?

Because it often nets them nearly the same money while getting the deal closed. A cash-tight buyer offering full price with a 3% concession leaves the seller roughly the same proceeds as an equivalent price cut, but the sale closes and the headline price stays intact for the neighborhood comps. In slower markets, concessions also widen the pool of buyers who can afford to reach the closing table, a dynamic covered in navigating a buyer’s market as a home buyer.

Is it better to ask for a lower price or seller-paid closing costs?

It depends on how much cash you have. If you’re short today, the concession usually helps more: a $9,000 credit on a $300,000 purchase cuts your cash to close by about $8,550, while a $9,000 price reduction only trims your payment by roughly $50 to $60 a month. If you have ample reserves, the lower price wins long-term: you borrow less and pay less interest. Our guide to negotiating house prices covers when to push on price instead.

Can seller concessions cover my down payment?

No. Concessions can pay closing costs, prepaid taxes and insurance, discount points, and other settlement charges, but agency rules prohibit applying interested-party contributions to the down payment, to reserves, or to the minimum borrower contribution. Down payment funds must come from your own resources, eligible gift funds, or an approved assistance program. Any concession exceeding your actual closing costs is treated as a sales concession rather than paid to you, so plan that money separately using how to save for a down payment.

The bottom line on seller-paid closing costs

Seller-paid closing costs are buyer-side settlement charges the seller agrees to cover, negotiated in the purchase agreement and credited to you at closing. Your ceiling is set by your loan program: 3%, 6%, or 9% on a conventional loan depending on loan-to-value, 6% of the sales price on FHA, and 4% of reasonable value on VA. Concessions can never fund your down payment, reserves, or minimum borrower contribution, and anything above your actual closing costs is deducted from the sales price. Ask at full price, target the lines that are genuinely yours, and time the request to a soft market, a stale listing, or an inspection finding.

If you’re ready to structure a concession that fits your program’s cap, talk to Align Lending, we’ll size the limit for your down payment, shop your scenario across our lender network, and show you the credit-versus-price math side by side. Call 248-506-5727 or start online today.

Footnotes:

1. Align Lending is not acting on behalf of or at the direction of FHA or HUD. FHA contribution limits and the treatment of inducements to purchase are set by HUD and are subject to change. Return to text.

2. Align Lending works with VA-approved lenders and is not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency. VA concession limits and the definition of a concession are set by the Department of Veterans Affairs and are subject to change. Return to text.

3. This is not tax advice. The deductibility of seller-paid points, the tests that must be met, and the required reduction to your home’s basis depend on your circumstances. Consult a qualified tax professional about your situation. Return to text.

4. Example figures are hypothetical and for educational purposes only; they do not constitute an advertisement of credit terms or a rate quote under federal or state lending laws. Your closing costs, permitted concession, cash to close, and monthly payment depend on your application, the property, the appraisal, and market conditions. Return to text.

Sources: conventional interested-party contribution limits of 3%, 6%, and 9% by LTV/CLTV and 2% on investment properties, measurement against the lower of sales price or appraised value, the prohibition on using contributions for the down payment, reserves, or minimum borrower contribution, and deduction of excess contributions from the sales price with LTV/CLTV recalculated, Fannie Mae Selling Guide B3-4.1-02. FHA limit of 6% of the sales price, treatment of excess contributions as inducements to purchase, and the dollar-for-dollar reduction of the sale price before applying the LTV ratio, U.S. Department of Housing and Urban Development (Mortgagee Letter 2005-02 and Handbook 4000.1). VA concession limit of 4% of reasonable value and the definition of a concession, U.S. Department of Veterans Affairs. Closing Disclosure delivery at least three business days before scheduled closing, the Seller Credit section on page 3 and “Seller Paid” line items on page 2, and Estimated Cash to Close reduced by seller credits, Consumer Financial Protection Bureau. Buyer treatment of seller-paid points and the required basis reduction, IRS Publication 530. Michigan state transfer tax of $3.75 per $500 (MCL 207.525) with seller liability (MCL 207.523), county transfer tax of $0.55 per $500 in counties under 2,000,000 population (MCL 207.504), and the $30 flat recording fee per document (MCL 600.2567).

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Purchase agreement language, seller concession clauses, and the tax treatment of seller-paid costs should be reviewed by a licensed real estate professional, attorney, or tax advisor in your state. Consult a qualified professional about your situation. Program terms and figures shown are illustrative, are not a rate quote or an offer of credit, and are subject to change. Align Lending is an independent Michigan mortgage broker, NMLS #2041154.