Concession Limits by Loan Type

The ceiling on seller concessions is set by the loan program, not by the seller or the market. FHA allows up to 6% of the purchase price, USDA allows up to 6%, and VA allows up to 4% of the price in seller-paid concessions. Conventional loans scale with your down payment: 3% when you put down less than 10%, 6% with 10-25% down, and 9% with 25% or more down. Two details matter. On VA, the 4% cap applies to concessions such as the funding fee, prepaids, and discount points above the market-normal amount; ordinary and customary closing costs like title, recording, and lender fees are not capped, and the funding fee counts toward the 4% cap. On FHA, staying inside 6% keeps the deal clean, because a contract that exceeds the limit has to be rewritten before the lender will approve the file.

Contract Language

Seller concessions get written into the purchase contract in the section where the parties spell out the seller's contribution. The line should state a dollar amount or a percentage of the price, name the buyer as the recipient, and confirm the funds go toward closing costs, prepaids, and other allowable buyer expenses at closing. Your lender should review the credit before you sign, because the exact dollar figure has to fit inside the loan program's limit once fees, points, and prepaids are added up. Vague language such as "seller to assist with closing costs" invites surprises; a specific, capped number leaves no room for the credit to blow past the loan limit and stall the transaction.

Negotiation Strategy

Negotiate the concession as part of the whole offer, not as a separate ask. In a balanced Central Texas market, a credit of 3-6% of the price is a reasonable starting point, and the seller's willingness usually tracks how the offer compares with competing bids. Ask your lender for the exact concession allowance in writing before you make the offer, then let your agent position the credit as a way to get the deal closed rather than a discount on the price. If the seller balks at the full amount, offer to split it: a smaller credit plus a slightly higher price can still fund the points while keeping the seller's net roughly the same. Get the pre-approval first so your exact concession allowance is in writing, then buy with Patrick and I will structure the whole offer around it.

vs Price Reduction

A price reduction and a seller concession are not the same dollar. A price cut lowers your loan amount and your payment for the full life of the loan, but it does nothing for the cash you need at closing. A concession pays actual expenses, including the points that buy down your rate, which lowers your payment without changing the price you finance. Temporary buydowns are a separate tool: a 2-1 or 3-2-1 buydown subsidizes the payment for the first year or two and then steps up to the note rate, while points buy a permanent rate reduction for the life of the loan, so compare each against a price cut on the same basis. When cash-to-close is the constraint, concessions win. When you have plenty of cash and want the smallest long-term payment, a price reduction can be the better trade. A hybrid works too: use part of the credit for points and negotiate a modest price cut on top.

Math Comparison

Here is the trade in dollars. On a $300,000 home with 3.5% down and a 6% FHA credit, the seller can contribute up to $18,000. One discount point is 1% of the loan amount, so on the $289,500 loan one point costs about $2,900. The rate reduction a point buys varies by lender and program; a common illustration is about 0.25% off the rate, but your loan officer has to quote the real number for your file. Use about $2,900 of the credit for one point and $7,000 for closing costs and prepaids, and the buyer brings roughly $10,000 less to the table than the same loan with no credit. Compare that with a $9,000 price cut to $291,000: the payment drops by about $40 a month for 30 years, but the buyer still pays full closing costs in cash. The concession route lowers your upfront cash and your first-year payment; the price cut lowers your lifetime payment by a smaller monthly amount. Which one wins is a function of how long you stay and how much cash you want to protect.

Illustrative math, not a quote. A discount point is 1% of the loan amount, per the CFPB's Loan Estimate explainer, and the rate reduction per point varies by lender and program. Figures reviewed October 2, 2026.