02 What you need to know
How seller credits work on a home purchase
A seller credit is money the seller agrees to put toward your costs at closing. It’s written into the purchase contract, and your lender must see it there.
What a seller credit can pay for
- Allowable closing costs: lender fees, title, escrow, and prepaid items like interest, taxes, and insurance, depending on the loan type.
- Discount points: an upfront fee that permanently lowers your interest rate. Pricing varies daily.
- A temporary buydown: money set aside to reduce your payment for the first one to three years, such as a 2-1 buydown.
Seller credit limits by loan type
| Loan type | Maximum seller contribution |
|---|---|
| Conventional, primary or second home, LTV above 90% | 3% |
| Conventional, primary or second home, LTV 75.01%–90% | 6% |
| Conventional, primary or second home, LTV 75% or less | 9% |
| Conventional, investment property | 2% |
| FHA | 6% |
| VA | 4% of reasonable value in concessions; normal closing costs and discount points don’t count toward it |
Conventional limits are Fannie Mae’s, based on the lower of the price or appraised value; LTV is loan-to-value. Jumbo and Non-QM limits are set by each lender.
A credit generally can’t exceed your actual eligible costs, and it can’t become unrestricted cash back to you or go toward your down payment. Any excess may be lost or treated as a price reduction. The appraisal also has to support the contract price.
03 Real-world example
Example: $10,000 off the price vs. a $10,000 seller credit
Say you’re buying an $800,000 home with 20% down on a 30-year fixed loan at a hypothetical 7% rate.
| $10,000 price reduction | $10,000 seller credit | |
|---|---|---|
| Purchase price | $790,000 | $800,000 |
| Down payment (20%) | $158,000 | $160,000 |
| Loan amount | $632,000 | $640,000 |
| Principal & interest | $4,204.71 | $4,257.94 |
| What you save | $53.22/mo and $2,000 of down payment | $10,000 less cash to close |
Assumptions: hypothetical 7% rate, illustrative only and not a current offer; principal and interest only. The price cut would also lower property taxes slightly, about $8 a month at California’s 1% base rate. The credit assumes at least $10,000 of eligible closing costs.
The price cut saves you $2,000 up front and about $53 a month. The credit saves you $10,000 up front, or it can be aimed at your rate or payment instead.
Using the credit for a buydown
On this $640,000 loan, a full 2-1 buydown would cost about $14,917.08, more than the $10,000 credit. A 1-0 buydown (Year 1 calculated at 6%) would cost about $5,049.75 and lower your Year 1 payment by $420.81 a month. That could leave $4,950.25 of the credit for other closing costs.
See a full year-by-year comparison in seller credit vs. price reduction vs. buydown.
04 What most people overlook
What buyers overlook when negotiating seller credits
Ask for the right amount. If you ask for more credit than your eligible costs, the extra may be wasted. Know your estimated closing costs before you write the offer.
The appraisal still has to work. Raising the price to cover a larger credit only helps if the home appraises at that price.
The lender has to see it. A side agreement outside the contract isn’t allowed. Every credit belongs in the purchase agreement or a signed amendment.
A temporary buydown is temporary. You still qualify at the full note rate on many programs, and the payment rises when the buydown ends.
On an LA-sized loan, a modest price cut barely moves the monthly payment. A credit of the same size can change your cash to close or your first-year payment by much more.
05 How I’d approach it
How I’d structure a seller credit in an offer
Before your agent writes the offer, I want to know what you need most: less cash at closing, a lower rate, or a lower first-year payment. The credit should be sized for that.
I start with a Loan Estimate for your price and down payment, so we know your eligible closing costs.
- I confirm the credit limit for your loan type and LTV.
- I price out points and temporary buydowns that day, since pricing changes daily.
- I compare that against a price reduction of the same size.
- Then I give your agent a specific credit amount to request, with a little room in case costs shift.
You can model a temporary buydown yourself with the buydown calculator.