Seller concessions are money the seller agrees to put toward the buyer’s closing costs, prepaid items, or sometimes a rate buydown, as part of the purchase contract. They can lower the cash you need at closing, but every loan program caps how much a seller can contribute, and the credit cannot exceed your actual eligible costs. Used well, concessions are a negotiating tool. Used carelessly, they can create appraisal or underwriting problems late in the deal.
What concessions can and cannot pay for
Concessions are meant to offset the costs of getting the loan and closing the sale. They are not cash back to the buyer. In general, they may be applied to:
- Lender fees and third-party closing costs, such as appraisal, title, and recording charges.
- Prepaid items, such as the first year of homeowners insurance and the initial deposit for your escrow account.
- Florida state taxes on the mortgage and note, which appear as government charges at closing.
- Discount points or a temporary buydown, where the loan program allows it.
What they usually cannot do is cover your down payment, pay off your personal debts, or come back to you as cash. If the agreed credit is larger than your eligible costs, the extra typically goes unused, and the contract may need to be amended.
Program limits on seller contributions
Each loan type sets its own ceiling, usually as a share of the price or loan amount. The limits depend on the program, the occupancy, and for conventional loans, the size of your down payment. Here is a general overview. Your loan officer will confirm the exact rules for your file, since requirements vary and change over time.
| Loan type | How the limit generally works |
|---|---|
| Conventional | Tiered by down payment and occupancy; investment properties have a lower cap |
| FHA | A single cap on seller-paid costs, with some items counted separately |
| VA | Normal closing costs plus a separate limit on certain other concessions |
| USDA | A cap on seller contributions toward eligible costs |
Knowing the cap before writing an offer keeps you from asking for a credit your loan cannot use.
How concessions interact with price and appraisal
A common strategy is to offer a slightly higher price in exchange for a seller credit. The seller nets about the same, and the buyer brings less cash to closing. It can work, but there is a catch: the home still has to appraise at the contract price.
If the appraisal comes in below the price, the lender bases the loan on the lower value. You might then need to bring more cash, renegotiate the price, or reduce the concession. Our article on what happens with a Florida appraisal after you go under contract explains your options.
Some questions to ask before using this approach:
- Do recent nearby sales support the higher price?
- Would a price reduction serve me better than a credit over the long run?
- How much more would I pay each month on the higher loan amount?
- Would I rather use the credit for closing costs or a rate buydown?
Try both versions in the mortgage payment calculator to see the monthly difference side by side.
Florida details worth knowing
Before moving into mortgages in 2011, Michael spent about 11 years at a Flagler Beach title company handling real estate searches and closings. A lot of what makes concessions work smoothly comes down to how the contract and the settlement statement line up. A few Florida points to keep in mind:
- Who pays for title insurance: in Florida, whether the buyer or seller pays for the owner’s title policy is negotiable, and local custom differs by county. Confirm it in the contract rather than assuming.
- Insurance prepaid costs: Florida homeowners premiums can be a large part of closing, so a concession covering prepaid items can make a real difference. Get your quote early so the numbers are accurate.
- Property tax prorations: taxes in Florida are paid in arrears, so the seller often credits the buyer for their share of the year. That proration is separate from a negotiated concession.
- Repair credits: a credit for an inspection item may be treated differently than a closing cost credit by the lender. Ask how it should be written.
For a clear picture of what you will owe overall, see our cash to close vs. closing costs worksheet.
When concessions make sense
Concessions tend to be easier to negotiate when homes are sitting longer, when a property needs work, or when a builder is trying to move inventory. In a busy market with multiple offers, asking for a large credit can make your offer less appealing. Your agent can tell you what is realistic for a particular listing, and your loan officer can tell you how much of a credit your loan can actually use.
Frequently asked questions
Can a seller pay for my homeowners insurance?
Seller credits can often go toward prepaid items, which can include the first year of homeowners insurance. The total still must fit within your program’s limit. Your loan officer can confirm how it will be applied.
Are builder incentives the same as seller concessions?
Often they are treated the same way when the builder is the seller, and they count toward the same limits. Some builder incentives are tied to using a particular lender, so compare the full offer carefully.
Should I ask for concessions in my first offer?
It depends on the market and the home. Some buyers include a credit from the start, while others wait for the inspection to negotiate repairs. Talk with your agent about the approach that fits the listing.
If you are writing an offer and wondering how a seller credit would fit your loan, Michael Akialis, a Flagler Beach mortgage loan originator, can run the numbers with you before you sign. Read more about Michael’s background or call (386) 793-5435 to talk it through.
Mortgage information is for educational purposes only and is not a commitment to lend or extend credit. All loans are subject to credit approval, property approval, underwriting guidelines, program eligibility, and availability. Program rules, rates, fees, and requirements can change. Michael Akialis, NMLS #832250; American Home Mortgage Group LLC, NMLS #1812447.