Seller Concessions in California: Limits by Loan Type and How to Use Them
Seller concessions are money the seller agrees to put toward the buyer’s costs, usually as a credit at closing for closing costs, prepaid items or a rate buydown, instead of lowering the price. Every major loan program caps them. Fannie Mae allows 3%, 6% or 9% on a primary home depending on the down payment, FHA allows up to 6% of the sales price, and VA caps concessions at 4% of the home’s reasonable value while not limiting credits for normal closing costs. None of these programs lets a concession pay the down payment.
In California, concessions come up in three places: in the offer, when a buyer asks for help with closing costs; after inspections, as a credit instead of repairs; and since 2024, as a way to cover a buyer’s agent’s compensation. This guide covers the limits, the allowed uses, the math against a price cut, and how to write the request.
What counts as a seller concession
Lenders call these interested party contributions, or IPCs. Fannie Mae’s Selling Guide defines interested parties to include the seller, the builder or developer, and the real estate agent or broker. It also covers any affiliate, or anyone else who benefits from a higher price and can influence it.
A concession can take two forms on your Closing Disclosure. A general credit appears as “Seller Credit,” which the Consumer Financial Protection Bureau describes as the amount the seller has agreed to contribute to your closing costs. If the seller instead agrees to pay specific charges, those can appear as “Seller Paid” items on page 2. Your lender must give you the Closing Disclosure three business days before closing.
Some money that moves at closing isn’t a concession. Fannie Mae excludes lender credits from premium pricing, prorated property tax credits where taxes are paid in arrears, and certain gifts of equity. Typical seller costs paid under local custom are also outside its limits; our guide to who pays closing costs in California sets out those customs county by county.
Seller concession limits by loan type
| Loan | Limit | Measured against | Source and date |
|---|---|---|---|
| Conventional (Fannie Mae), primary home or second home | 3% if LTV/CLTV is over 90%; 6% from 75.01% to 90%; 9% at 75% or less | Lower of sales price or appraised value | Selling Guide B3-4.1-02 (05/07/2025) |
| Conventional (Fannie Mae), investment property | 2% at any LTV | Lower of sales price or appraised value | Selling Guide B3-4.1-02 (05/07/2025) |
| FHA | 6% | Sales price | HUD Handbook 4000.1 text published with Mortgagee Letter 2016-11 |
| VA | No limit on closing-cost credits; concessions capped at 4% | Reasonable value on the VA Notice of Value | VA.gov, updated October 5, 2026 |
| USDA guaranteed | 6% | Sales price | USDA proposed rule, April 2026, describing current 7 CFR 3555.102(h) |
We read FHA’s 6% rule in the Handbook 4000.1 text HUD published with Mortgagee Letter 2016-11, so ask your lender to confirm it against the current handbook. Freddie Mac sets its own limits in its Seller/Servicer Guide; we didn’t verify them for this page, so ask your lender for the current figure. Lenders can also impose stricter overlays than the agency minimums.
How the down payment changes the conventional limit
On a Fannie Mae loan, the limit rises as the down payment grows. With 5% down, a buyer’s LTV is 95%, so the cap is 3%. From 10% down to just under 25% it’s 6%, and with 25% or more down it’s 9%. The percentages apply to the lower of price or appraised value, so a low appraisal shrinks the dollar cap too.
What concessions can and can’t pay for
The programs agree on the main rule: concessions cover costs, not equity.
- Fannie Mae: allowed for the borrower’s closing costs, including prepaids, and for HOA assessments covering up to 12 months after closing. Not allowed for the down payment, financial reserves or the minimum borrower contribution. A rate buydown funded by an interested party counts toward the limit.
- FHA: interested parties may contribute toward origination fees, other closing costs and discount points. The handbook text also lists interest rate buydowns and the upfront mortgage insurance premium. Contributions over 6% are treated as an inducement to purchase.
- VA: the seller can cover some or all of the buyer’s closing costs without a VA limit. Items VA treats as concessions, such as paying the VA funding fee, paying off the buyer’s debts or prepaying hazard insurance, are capped at 4% of reasonable value.
A credit also can’t exceed the buyer’s actual costs. Under Fannie Mae’s rules, anything above the limit, or above the closing costs, is treated as a sales concession. It is deducted from the price, and the loan-to-value ratio is recalculated. Ask the lender for a cost estimate before you settle on a credit amount.
Buyer’s agent compensation and concessions
Since the 2024 NAR settlement, many California buyers sign a written agreement with their agent and may ask the seller to cover some or all of that compensation. The agencies addressed whether that counts against concession limits.
- FHA: in FHA INFO 2024-12 (March 28, 2024), HUD said seller-paid buyer-agent commissions that follow state or local law or custom and are reasonable aren’t treated as interested party contributions, if other requirements are met.
- Fannie Mae and Freddie Mac: according to a Florida Realtors report on their April 15, 2024 clarifications, both said a seller or seller’s agent paying the buyer’s agent commission doesn’t have to count toward IPC limits.
- VA and USDA: USDA’s April 2026 proposed rule says VA, FHA, Fannie Mae and Freddie Mac all exclude a reasonable and customary commission. It proposes the same exclusion for USDA loans, which currently count it within the 6%. Comments closed June 22, 2026. As of October 24, 2026, the Federal Register listed no final rule, so treat the USDA change as proposed.
How the request is written still matters. Our guide to the California buyer-broker agreement explains how compensation requests fit into an offer.
A credit or a lower price: the math
Sellers often see a $20,000 credit and a $20,000 price cut as the same thing, and their net proceeds are close. For the buyer they aren’t the same. Here is a hypothetical, on our arithmetic: a $900,000 purchase with 20% down and a 30-year loan at an assumed 6.5% rate.
| Item | $20,000 seller credit | $20,000 price reduction |
|---|---|---|
| Price | $900,000 | $880,000 |
| Down payment (20%) | $180,000 | $176,000 |
| Loan amount | $720,000 | $704,000 |
| Principal and interest | About $4,551 a month | About $4,450 a month |
| Cash saved at closing | Up to $20,000 of closing costs | $4,000 of down payment |
| Property tax base | Based on $900,000 | Based on $880,000 |
The credit saves about $16,000 more cash at closing. The price cut saves about $101 a month on the loan, plus a slightly lower tax bill. Buyers short on cash usually do better with the credit; buyers with cash to spare and a long horizon may prefer the lower price. At 80% LTV, Fannie Mae’s 6% cap would allow up to $54,000, so this credit fits if closing costs are at least $20,000.
A credit can also be used to buy down the interest rate, which counts toward the limit. Ask your lender to price both options side by side.
Repair credits after inspections
In California, a request for repair often ends with a credit instead of the seller doing the work. Lenders generally treat that credit like any other concession, so it falls under the same limits and can’t fund the down payment. If the credit would push you over your program’s cap, a price reduction may be the only way to capture the value.
If the appraiser makes a repair a condition of the loan, a credit may not satisfy the lender, so ask before you agree to the terms. Our page on the request for repair covers the negotiation, and the appraisal contingency guide covers what happens if the value comes in low.
Asking for concessions in a California offer
A concession request is written into the California residential purchase agreement, alongside price, deposit and contingencies. Keep it specific: a dollar amount, what it’s for, and language that limits it to what the lender allows.
- Get a lender estimate first. Know your closing costs and prepaids so the credit doesn’t exceed them.
- Check your program’s cap. Use the lower of price or expected appraised value.
- Decide credit or price. Run the comparison above with your own numbers.
- Write the request clearly. State the amount and that any portion the lender won’t allow will be handled as the parties agree.
- Read the market. In a multiple-offer situation, sellers compare net proceeds, so a credit can weaken an offer; see how sellers compare multiple offers.
- Confirm the Closing Disclosure. Check that the seller credit and any seller-paid items match the contract.
Sellers weighing a request should look at it through their seller net sheet, since a credit and a price cut can leave the seller in a similar place while changing the buyer’s financing a lot. First-time buyers can find the wider picture in our first-time homebuyer’s guide.
This is general information, not legal or lending advice; talk to your mortgage lender or a California real estate attorney about your situation.
Questions people ask
What is the maximum seller concession on a conventional loan?
For a Fannie Mae loan on a primary home or second home, it’s 3% with less than 10% down, 6% with 10% to just under 25% down, and 9% with 25% or more down. Investment properties are capped at 2%. The percentage applies to the lower of price or appraised value.
What are the FHA seller concession limits?
FHA lets interested parties contribute up to 6% of the sales price toward origination fees, other closing costs and discount points. Amounts above 6% are treated as an inducement to purchase. Seller-paid buyer-agent commissions that are reasonable and customary don’t count.
How does the VA 4% seller concession rule work?
VA doesn’t limit seller credits for normal closing costs. Concessions, meaning extras such as paying the funding fee, paying off the buyer’s debts or prepaying hazard insurance, are capped at 4% of the reasonable value on the VA Notice of Value.
Can seller concessions be used for the down payment?
No. Fannie Mae bars IPCs from funding the down payment, reserves or the minimum borrower contribution, and FHA and VA apply them to closing costs and related items. The down payment has to come from your own or other acceptable funds.
Is a seller credit the same as a seller concession?
A seller credit is the most common type of concession: a lump sum toward your closing costs that appears on the Closing Disclosure. Concessions also include the seller paying specific fees or funding a rate buydown, and all of them count toward the same limit.
Can the seller pay my agent’s commission?
Yes, and FHA, Fannie Mae and Freddie Mac have said a reasonable, customary seller-paid buyer-agent commission doesn’t count toward their concession limits. Put the request in your offer and confirm with your lender.
Planning an offer and want to know whether to ask for a credit or a lower price? Talk with Diamond about buying a home, and see our financing resources for lender questions. Diamond may refer you to partners we work with; you’re free to choose any provider.
Sources & notes
- Fannie Mae Selling Guide: B3-4.1-02, Interested Party Contributions (05/07/2025)
- HUD: Handbook 4000.1 excerpt, Interested Party Contributions (attachment to Mortgagee Letter 2016-11)
- HUD: FHA INFO 2024-12, seller-paid buyer agent commissions (March 28, 2024)
- U.S. Department of Veterans Affairs: VA funding fee and loan closing costs (updated Oct. 5, 2026)
- Federal Register: USDA Rural Housing Service proposed rule, Limited Party Concessions (filed April 17, 2026)
- Florida Realtors: Fannie Mae, Freddie Mac clarify IPCs (April 16, 2024)
- Consumer Financial Protection Bureau: Closing Disclosure explainer
Last reviewed October 2026 by Matthew Martinez.
