Seller concessions can make a home affordable for a buyer who has the income for the payment but not the cash for closing. In North Carolina, they’re common, especially for first-time buyers. But concessions have limits. Every loan type caps how much a seller can contribute, and money over the cap simply can’t be used. Here’s what those limits are and how to use concessions without leaving money on the table.
A quick refresher
A seller concession is money the seller agrees to pay toward the buyer’s costs at closing, like loan fees, attorney fees, prepaid taxes and insurance, or sometimes an interest rate buydown. In North Carolina, it’s written into the Offer to Purchase and Contract as an amount the seller will pay toward the buyer’s expenses at settlement. If you’re new to the idea, start with seller concessions explained.
The limits by loan type
The cap is usually a percentage of the purchase price (or the appraised value, if lower). These are the common limits for a primary residence. Always confirm the current rules with your lender, because they change and your specific loan may differ.
- Conventional loans: 3% if you’re putting down less than 10%, 6% with 10% to 25% down, and 9% with more than 25% down. Investment properties are capped at 2%.
- FHA loans: up to 6% of the sales price.
- VA loans: the seller can pay the buyer’s normal closing costs, plus up to 4% in additional concessions, such as prepaid items or paying off some of the buyer’s debt.
- USDA loans: up to 6% of the sales price.
Two more rules that trip people up
Concessions can’t exceed your actual costs
Even if your loan allows 6%, the seller can only pay up to what your closing costs and prepaids actually add up to. If you negotiate $12,000 and your costs are $9,500, the extra $2,500 generally can’t be paid to you in cash or put toward your down payment. It’s usually just lost, or the contract has to be adjusted before closing.
The home still has to appraise
Some buyers ask for a higher price in exchange for a bigger concession. That can work, but only if the home appraises at the higher price. If it doesn’t, the lender lends on the lower value and the math falls apart. See earnest money and appraisals, explained for what happens after a low appraisal.
Worked example
A buyer purchases a $280,000 home with an FHA loan. The FHA limit would allow up to $16,800 (6%). The buyer’s actual closing costs and prepaids come to about $9,000. The most the seller can usefully pay is about $9,000. Asking for more doesn’t help the buyer and may complicate the loan.
To see what your costs might be, try our cash-to-close calculator, and read what closing costs NC buyers should expect.
Concessions or a lower price?
For buyers, a concession lowers the cash you need at closing. A price reduction lowers your loan and your monthly payment a little. If cash is tight, a concession usually helps more. If you have plenty of cash, a lower price may be the better deal.
For sellers, the net result can be similar either way. A $5,000 concession and a $5,000 price reduction put about the same money in your pocket. But the sales price that gets recorded, and that future appraisals use, is different. Run both versions through our seller net proceeds calculator before you decide.
What about repair credits?
After an inspection, buyers often ask for a credit instead of repairs. Lenders usually treat that credit like any other concession: it has to fit within the loan’s limit and can only cover closing costs, not cash to the buyer for the work. If the buyer’s costs are already covered, a price reduction may be the cleaner way to handle repairs. Your agent and lender can help you structure it.
Frequently asked questions
Can seller concessions be used for my down payment?
Generally, no. Concessions can cover closing costs and prepaid items, but your down payment has to come from your own funds or an approved source like a gift or down payment assistance program.
Do sellers in the Triad agree to concessions?
It depends on the market and the home. When homes are selling fast, sellers are less likely to agree. When homes sit longer, concessions are common. Your agent can tell you what’s typical right now for homes like the one you want.
What happens to concessions over the limit?
Money over the loan’s cap or over your actual costs usually can’t be used. It’s typically removed from the contract or adjusted before closing.
Loan rules change, so treat these limits as a starting point and confirm with your lender. This article is general information, not financial or legal advice.
Buying or selling in the Triad and want to structure an offer the right way? Talk to a Mantle Realty agent.
