Seller concessions are when the seller agrees to pay some of the buyer's closing costs as part of the purchase agreement. They are written into the contract and applied at closing, reducing your out-of-pocket cash.
The maximum concession amount depends on your loan type and down payment: FHA allows up to 6%, conventional allows 3-9% (based on down payment size), and VA allows 4%. Seller concessions are a powerful negotiation tool, especially in buyer-friendly markets.
How Seller Concessions Work
In your purchase offer, you request that the seller contribute a specific dollar amount toward your closing costs. If accepted, this money is applied to your eligible closing costs at closing. It is not a cash discount -- it is a credit applied toward your closing expenses.
The seller never hands you a check. Instead, the title company handles the transfer: the concession amount is deducted from the seller's proceeds and credited to you on the settlement statement. You bring less cash to closing, and the seller nets less from the sale.
Maximum Seller Concessions by Loan Type
Each loan program caps how much a seller can contribute. Exceeding these limits can disqualify the loan, so your agent and lender need to check this before writing the offer.
- FHAUp to 6% of purchase price
- Conventional (5-10% down)Up to 3%
- Conventional (10-25% down)Up to 6%
- Conventional (25%+ down)Up to 9%
- VAUp to 4%
- USDAUp to 6%
Note: Conventional loan limits depend on your down payment percentage. The larger your down payment, the more concession room you have.
What Seller Concessions Can Pay For
Seller concessions can cover most legitimate closing costs, but they cannot be applied to your down payment or reserved for future use.
Eligible Expenses
- Lender fees (origination, underwriting, processing)
- Title insurance and title search fees
- Appraisal fee
- Survey fee
- Prepaid items (property taxes, homeowner's insurance, prepaid interest)
- HOA transfer fees and association dues
- Recording fees and courier fees
What Concessions Cannot Cover
- Down payment (you still need your minimum down payment)
- Earnest money deposit
- Reserve requirements (extra cash set aside by the lender)
How to Request Seller Concessions
Including a seller concession in your offer is straightforward:
- 1Know your maximum. Work with your loan officer to determine the maximum concession allowed for your loan type and down payment.
- 2Include the request in your offer. Write the concession amount into the purchase contract on the buyer's offer form. In Texas, this is typically done in Paragraph 12 of the TREC One to Four Family Residential Contract.
- 3Explain the benefit. Emphasize that the seller receives full price while helping you cover closing costs. Frame it as a win-win.
- 4Negotiate strategically. In a seller's market, concessions are harder to get. You may need to offer full price or above. In a buyer's market, sellers may more readily accept a lower price or offer concessions upfront.
Market Tip
In the San Antonio market, seller concessions of 3-5% are common, especially when homes have been on the market for 30+ days or during slower seasons. Your agent should pull comparable data on recent concessions in your target area.
Concessions vs Price Reduction
A common question is whether to ask for a price reduction or seller concessions. They achieve different things:
Example on a $300,000 Home
| Price Reduction | Seller Concession | |
|---|---|---|
| Purchase price | $292,000 | $300,000 |
| Price reduction / concession | $8,000 off price | $8,000 toward closing |
| Down payment (3.5% FHA) | $10,220 | $10,500 |
| Cash needed at closing | $10,220 + closing costs | $10,500 + minimal costs |
The concession is often better when you are cash-constrained because it reduces your out-of-pocket closing costs. A price reduction lowers your monthly payment but does not help with the cash you need at closing.
Common Seller Concession Scenarios
First-Time Buyer with FHA Loan
You find a $280,000 home and have $12,000 saved. Your FHA down payment is $9,800. Closing costs will run about $7,000 to $9,000. You request 6% seller concessions ($16,800). The seller agrees. Your closing costs are covered, and you still have your full savings. This is the most common use of seller concessions for first-time buyers in Texas.
VA Loan Buyer with Limited Cash
As a qualified veteran, you can put $0 down on a $320,000 home. But closing costs still need to be paid. You request 4% seller concessions ($12,800). That covers most or all of your closing costs and the VA funding fee. You close with minimal cash out of pocket.
Investor Purchasing with Conventional Loan
You are putting 25% down on a rental property. Your loan allows up to 9% in concessions. You negotiate 5% ($15,000 on a $300,000 property) to cover closing costs and prepaids. The remaining 4% room gives you negotiating flexibility on other terms.
What Appraisers Look At
One important detail: if the seller concession exceeds typical closing costs for that market, the appraiser may flag the sale as having concessions that inflate the purchase price. The lender may require the seller to reduce the price by the excess amount or the buyer to bring more cash. Your loan officer can help you calculate the right concession amount to avoid this issue.
The Bottom Line
Seller concessions are one of the most effective ways to reduce your cash-to-close when buying a home. Work with your lender before making an offer to know exactly how much concession your loan allows, and let your agent negotiate it into the contract. In a balanced market, concessions of 3-6% are realistic and can save you thousands of dollars at closing.