Seller Concessions vs Price Reductions: What Buyers and Sellers Should Know
The short answer: A seller concession (often called a seller credit) is money the seller agrees to put toward the buyer's closing costs. The price stays the same, and the credit shows up at closing. A price reduction lowers the price itself. For the seller, the two cost roughly the same. For the buyer, a credit usually means less cash due at closing, while a lower price means a smaller loan. Lenders cap credits. FHA allows interested parties to contribute up to 6% of the sales price (HUD Handbook 4000.1), and Fannie Mae's conventional limits range from 2% to 9% depending on occupancy and loan-to-value (Fannie Mae Selling Guide B3-4.1-02).
The terms show up in negotiations, in contracts and on the closing paperwork. Our closing cost vocabulary guide explains where a seller credit appears on the Closing Disclosure.
What exactly is a seller concession?
Lenders call it an interested party contribution. Fannie Mae defines interested parties as the seller, the builder or developer, the real estate agent or broker, their affiliates, and anyone who benefits from a higher price and can influence it. Contributions used for the buyer's closing costs, including prepaids, are "financing concessions." Contributions can also cover up to 12 months of HOA assessments after closing (Fannie Mae B3-4.1-02).
What a credit can't do is just as important. Fannie Mae doesn't allow interested party contributions to fund the buyer's down payment or reserves (Fannie Mae B3-4.1-02). FHA lists what the 6% can go toward: origination fees, other closing costs, prepaid items and discount points, plus certain buydowns and the upfront mortgage insurance premium (HUD Handbook 4000.1).
How does a credit compare with a lower price?
Here's a side-by-side example with made-up numbers. A buyer is putting 10% down, has closing costs above $8,000, and the seller is willing to give up $8,000.
| $8,000 seller credit | $8,000 price reduction | |
|---|---|---|
| Contract price | $400,000 | $392,000 |
| Down payment (10%) | $40,000 | $39,200 |
| Loan amount | $360,000 | $352,800 |
| Closing costs the buyer pays in cash | $8,000 less | No change |
| Cost to the seller | about $8,000 | about $8,000 |
With the credit, the buyer brings about $7,200 less to closing ($8,000 credit minus the $800 larger down payment) but borrows $7,200 more. With the price cut, the buyer pays more cash up front but has a smaller loan and smaller monthly payments for years. Other costs tied to the price can shift a little too, so the seller's real numbers should come from their attorney's or closing agent's estimate.
When a credit often fits (our general observations): the buyer has enough income for the payment but is tight on cash. When a price cut often fits: the buyer has cash, wants the lowest loan, or the home may not appraise at the contract price.
What limits do lenders put on seller credits?
Conventional loans sold to Fannie Mae (B3-4.1-02). The limit is based on the lower of the sales price or the appraised value:
| Occupancy | Loan-to-value | Maximum financing concessions |
|---|---|---|
| Principal residence or second home | Over 90% | 3% |
| Principal residence or second home | 75.01%–90% | 6% |
| Principal residence or second home | 75% or less | 9% |
| Investment property | Any | 2% |
Typical seller-paid costs set by local custom don't count toward these limits.
FHA loans: up to 6% of the sales price. Seller-paid real estate commissions typical under local law or custom aren't treated as interested party contributions (HUD Handbook 4000.1).
VA, USDA and other programs have their own rules. Ask the buyer's lender before writing the offer.
What happens if the credit is too big?
The excess doesn't simply disappear. Fannie Mae requires financing concessions to be no more than the buyer's actual closing costs. Anything over that, or over the cap, is treated as a sales concession and deducted from the sales price. The lender then recalculates the loan-to-value (B3-4.1-02). FHA treats contributions over 6%, or over the actual eligible costs, as an inducement to purchase, which reduces the price dollar for dollar when the loan amount is figured (HUD Handbook 4000.1).
The practical result: the buyer may need more cash, or the loan may need restructuring late in the deal. Check with the lender before agreeing to a large credit.
Can you raise the price to cover the credit?
Buyers sometimes offer a higher price in exchange for a credit. That only works if the property appraises at the higher price. Fannie Mae requires the lender to give the appraiser information on all interested party contributions and to make sure the value is adequately supported (B3-4.1-02). FHA requires the contributions to be documented on the sales contract and the Closing Disclosure (HUD Handbook 4000.1). Our guide to contingencies explains what an appraisal contingency does if the value comes in low.
How does this work in a NJ deal?
- Put it in writing. Credits belong in the contract. Undisclosed credits are a problem. Fannie Mae won't buy loans with contributions given outside closing and left off the settlement statement (B3-4.1-02).
- Expect changes during attorney review. In a licensee-prepared contract for a one- to four-family home, either party's attorney can disapprove the contract within three business days and may suggest revisions that would make it satisfactory (N.J.A.C. 11:5-6.2(g)). A credit can come up again at that stage. See our attorney review guide.
- Stay in your lane. Agents explain options and loop in the lender. Legal and tax questions go to the attorneys and tax professionals.
Credits and pricing are part of financing basics on the exam. See our financing exam guide. Business Elementary's 75-hour course covers them in depth.
Sources
- Fannie Mae Selling Guide B3-4.1-02, Interested Party Contributions (IPCs): https://selling-guide.fanniemae.com/sel/b3-4.1-02/interested-party-contributions-ipcs
- HUD, FHA Single Family Housing Policy Handbook 4000.1 (Update 18, issued Aug 12, 2026), II.A.4 Interested Party Contributions and Inducements to Purchase: https://www.hud.gov/sites/default/files/Housing/documents/40001-hsgh-Update-18.pdf
- N.J.A.C. 11:5-6.2, incl. (g) attorney review (via LII): https://www.law.cornell.edu/regulations/new-jersey/N-J-A-C-11-5-6-2
Last reviewed: November 1, 2026
Frequently Asked Questions
Can a seller credit pay the buyer's down payment?
Not on a loan sold to Fannie Mae. Interested party contributions can't fund the down payment, reserves or minimum borrower contribution (Fannie Mae B3-4.1-02).
Is the FHA 6% limit based on the price or the loan amount?
The sales price. Interested parties may contribute up to 6% of the sales price toward eligible costs (HUD Handbook 4000.1).
Does the seller paying the commission count as a concession?
For FHA, no, when it's a commission typically paid by the seller under local law or custom (HUD Handbook 4000.1). Fannie Mae likewise excludes common and customary seller-paid costs from its limits.
Can a seller pay the buyer's HOA dues as a credit?
For Fannie Mae loans, assessments covering up to 12 months after closing can count as a financing concession (Fannie Mae B3-4.1-02).
Who decides whether to ask for a credit or a price cut?
The buyer, with input from their lender and attorney. The agent's job is to explain how each option affects cash to close, the loan and the appraisal.