USA: how much a seller can pay towards a buyer's costs, by loan type

In this article

Written by

Kooky

Builder of Shaka, the payment router that pays every agent their commission on closing date.

About Kooky and Shaka →

When a home seller in the United States agrees to pay part of the buyer's closing costs, the agreement is between the two of them, but the buyer's lender has the last word on how much of it the loan can absorb. Each loan programme has its own rule. Fannie Mae counts the money as an "interested party contribution" and caps it according to the size of the down payment and the use of the home. The Department of Veterans Affairs (VA) caps something narrower, which it calls a seller concession, and leaves ordinary closing costs outside the cap. The Department of Agriculture (USDA) sets a single percentage of the sales price for its guaranteed rural loans.

For a seller, the practical point is that the same credit can be acceptable in full under one loan and partly disallowed under another, and that a disallowed part does not simply vanish: under Fannie Mae's rule it is taken off the sales price the lender uses. This guide sets out what each programme's own text says, programme by programme, then how each one treats a seller's payment of the buyer's broker. It also says plainly where a text could not be read: Freddie Mac's Guide section and the Federal Housing Administration (FHA) handbook chapter that carries its limit are both named below as open points.

Fannie Mae Selling Guide B3-4.1-02, dated 7 May 2025; VA page on the funding fee and closing costs, updated 5 October 2026; USDA handbook HB-1-3555, Chapter 6, revised 5 May 2025.

What an interested party contribution is

Fannie Mae buys mortgages from lenders, and its Selling Guide tells those lenders what a loan must look like to be sold to it. Section B3-4.1-02 of the Guide, on a page dated 7 May 2025, defines interested party contributions as contributions made by third parties with a vested interest in the transaction. They are costs that are typically the buyer's responsibility and that someone else pays. The section says they take one of two forms, a financing concession or a sales concession, and the difference between the two drives everything that follows.

The Guide lists who counts as an interested party: the property seller, the builder or developer, the real estate agent or broker, and any affiliate of one of them. It adds a general test for anyone else: a party that can benefit from the sale of the property at the highest price and can influence that price. Affiliation, in the Guide's terms, exists through direct common ownership or control, whether by the lender, by the interested party, or by a third party over both.

Two parties are placed outside the definition by default. A lender or an employer is not an interested party to a sales transaction, the Guide says, unless it is the property seller or is affiliated with the seller or with another interested party. So a relocating employer paying an employee's closing costs is not caught by this section merely because it is paying, while a builder's in-house mortgage company is treated as an interested party because of the affiliation.

The logic behind the definition is visible in the test itself. A party that gains from a higher price has a reason to raise the price and hand part of it back to the buyer as a credit, which would leave the lender with a loan measured against a figure higher than what the home really changed hands for. The limits are the Guide's answer to that.

Fannie Mae's limits by loan-to-value and occupancy

The Guide sets a maximum for financing concessions. It depends on two things: whether the home is a principal residence, a second home or an investment property, and the loan-to-value ratio (LTV), or the combined ratio (CLTV) when there is more than one loan. The ratio is the loan divided by the value of the home, so a small down payment means a high ratio and a low maximum.

The percentage is not applied to the loan amount. The Guide says it is taken on the lesser of the sales price or the appraised value. A worked example, with illustrative figures that are not market data: a home is sold for US$400,000 and appraised at US$400,000. For a buyer who will live in it and puts 5 per cent down, the ratio is 95 per cent and the maximum is 3 per cent, or US$12,000. With 10 per cent down the ratio is 90 per cent and the maximum is 6 per cent, or US$24,000. With 25 per cent down the ratio is 75 per cent and the maximum is 9 per cent, or US$36,000. If the same home is bought as an investment property, the maximum is 2 per cent, or US$8,000, whatever the down payment.

The "lesser of" wording matters when the appraisal comes in low. If the home in the example is appraised at US$390,000 while the contract price stays at US$400,000, the 3 per cent maximum for the first buyer is computed on US$390,000 and falls to US$11,700.

Financing concession or sales concession

A financing concession, in the Guide's wording, is a contribution towards the loan from an interested party. The Guide accepts it for two purposes only. The first is the borrower's closing costs, prepaid items included. The second is homeowners' association assessments for periods after the settlement date, and only up to 12 months of them.

There is a second ceiling inside the first. The Guide requires financing concessions to be equal to or less than the sum of the borrower's closing costs. A seller cannot use the percentage maximum to pass the buyer more than the buyer's costs actually come to; what goes beyond those costs is treated as a sales concession.

A sales concession is defined as an interested party contribution that takes the form of non-realty items, and the Guide says it may be given before, at or after closing. Its list is concrete:

• cash or cash-like gifts;
• rebates from an agent or broker that are not credited towards the transaction;
• furniture, automobiles, decorator allowances, moving costs and other giveaways;
• incentives from a lender that is an interested party or is affiliated with one;
• financing concessions above the maximums.

The last item is the bridge between the two categories. A credit that starts life as a financing concession becomes a sales concession for the part that exceeds the table.

An interest rate buydown paid for by an interested party, or by a lender affiliated with one, is counted as well: the Guide says the cost of the subsidy must be included in the calculation. It carves out one arrangement used in new construction. A standby commitment agreed between a builder and a lender before there is a sales contract is not subject to the maximums, and the Guide requires such loans to be delivered with the code SFC 887.

What happens to the excess under Fannie Mae's rule

The Guide does not tell the lender to refuse the loan because a seller was generous. It tells the lender to value the deal differently. Sales concessions are deducted from the sales price, and the lender then uses the lower of that reduced price or the appraised value to calculate the LTV and CLTV ratios.

Take the buyer from the earlier worked example who puts 5 per cent down on the US$400,000 home: a down payment of US$20,000 and a loan of US$380,000. Assume the buyer's closing costs and prepaid items total US$16,000 and the seller agrees to credit all of it. The maximum at a 95 per cent ratio is US$12,000, so US$4,000 is excess. Deducted from the price, it gives US$396,000, which is lower than the US$400,000 appraisal. The loan of US$380,000 is now measured against US$396,000, a ratio of 95.96 per cent instead of 95 per cent.

A change of less than one point may look small, but the Guide's own table works in bands: a loan sitting exactly at 90 or 75 per cent is pushed into the next band, with its lower maximum, by any deduction. What follows for a particular loan, whether a smaller loan, a larger down payment or different terms, depends on the product and the lender; the Guide section read for this article states the recalculation and does not go further.

The closing-cost ceiling works the same way. In a second illustrative case on the same home, a buyer puts 20 per cent down, borrowing US$320,000. The table allows 6 per cent, or US$24,000, but the buyer's closing costs are only US$9,000. If the seller credits US$12,000, the US$3,000 above the buyer's costs is a sales concession even though the total is far under the table maximum. The price for ratio purposes becomes US$397,000 and the ratio moves from 80 per cent to 80.60 per cent.

What Fannie Mae leaves outside the count, and what it bars

Several payments are outside the limits altogether. The Guide says fees or costs that are typically paid by the seller under local custom, which it calls common and customary fees or costs, are not subject to the maximums. It also lists items that are not treated as interested party contributions at all:

• lender credits that come from premium pricing, even when the lender is an interested party;
• gift funds or a gift of equity from a seller who is an acceptable donor under the Guide's gift sections, B3-4.3-04 and B3-4.3-05, provided the donor is not a builder or another interested party and has no affiliation with one;
• legitimate pro-rated real estate tax credits in places where taxes are paid in arrears;
• standby commitment fees.

Three prohibitions sit alongside the limits. First, interested party contributions cannot be used for the borrower's down payment, for financial reserves or to meet the minimum borrower contribution. A seller credit under this section reduces what the buyer pays in costs; it does not replace the buyer's own stake.

Second, the Guide rules out payment abatements. A loan with any payment abatement is not eligible for sale to Fannie Mae even when the abatement is disclosed. The Guide draws the line with homeowners' association fees: paying 12 months or less is an interested party contribution, and paying more than 12 months is an abatement.

Third, everything must be on the record.

The section was last changed by Announcement SEL-2025-03 of 7 May 2025. A note published on 22 May 2025 by the law firm Weiner Brodsky Kider reported that the changes to the contribution and lender incentive rules applied to loans with note dates on or after 3 September 2025.

Freddie Mac: not read for this guide

Freddie Mac's own rule on seller contributions could not be opened for this guide, so no Freddie Mac table is reproduced and nothing is asserted about how its limits line up with Fannie Mae's. The only statement kept is a reported one, not confirmed on a Freddie Mac page: the Northern Virginia Association of Realtors wrote on 19 April 2024 that the standard limits of both companies run from 2 to 9 per cent of the property's value, and that Freddie Mac, in a letter dated 15 April 2024, said buyer agent fees customarily paid by the seller are excluded from its financing concession limits. The Freddie Mac text itself is the place where its figures are set.

FHA: the definitions, and a limit not confirmed here

FHA insures loans made by approved lenders, and its rules are in the Single Family Housing Policy Handbook, Handbook 4000.1. The handbook's glossary, last revised on 26 November 2025, uses the same vocabulary as the conventional guides with a wider cast. Interested parties are sellers, real estate agents, builders, developers, mortgagees, third party originators or other parties. An interested party contribution is a payment by one or more of them towards the borrower's origination fees, other closing costs including items paid outside closing, prepaid items and discount points.

The percentage limit that the handbook places on those contributions sits in the body of the handbook, which could not be retrieved for this guide. The glossary as read gives no percentage. The figure is therefore not stated here, and the handbook itself is where it is set.

What the glossary does show is the mechanism that an excessive payment would touch. The borrower's minimum required investment is at least 3.5 per cent of the adjusted value, under section 203(b)(9)(A) of the National Housing Act. For a purchase, the adjusted value is the lesser of the purchase price less any inducements to purchase, or the property value. In other words, FHA's base figure for a purchase is already written net of inducements, so a payment classed as an inducement lowers the figure on which the loan is built. Which payments the handbook classes as inducements, and how it treats a contribution above its limit, were not read and are left open.

VA: the 4 per cent rule and what sits outside it

The VA's rule is built differently from the others, and the difference favours a seller who is paying ordinary closing costs. The VA's page on the funding fee and closing costs, last updated on 5 October 2026, says the department does not limit credits for a loan's closing costs, and that sellers or builders may offer credits to cover some or all of them. Among the closing costs the page says buyer and seller can negotiate are origination charges, discount points, the appraisal, taxes, title insurance and recording fees.

What the VA does limit is the seller's concessions: no more than 4 per cent of the home's reasonable value. The reasonable value is not the contract price. The page says it is found in the VA Notice of Value.

A concession, on the VA's definition, is anything of value added to the transaction at no additional cost to the buyer. The page gives three examples: a credit for the VA funding fee, the payoff of a debt, and prepayment of the buyer's hazard insurance. Prepaid insurance is thus a financing concession inside the percentage under Fannie Mae's rule, and a concession inside the 4 per cent under the VA's, while closing costs proper are capped by Fannie Mae and uncapped by the VA.

A worked example, with illustrative figures: on a home with a reasonable value of US$400,000, the cap on concessions is 4 per cent, or US$16,000. Assume the seller agrees to a credit of US$8,000 towards the funding fee, US$2,000 of prepaid hazard insurance and US$5,000 to pay off one of the buyer's debts. The concessions total US$15,000, which is 3.75 per cent of the reasonable value and inside the cap. If the seller also credits US$9,000 of closing costs, that sum is not counted. The seller is paying US$24,000 in all, 6 per cent of the reasonable value, and the VA's limit is still respected.

The page read for this guide does not say what happens when concessions pass 4 per cent, and the chapter of the VA Lenders Handbook that deals with seller concessions could not be opened. The consequence of an excess is left as an open point. The same page states one related rule about the buyer's side: on a purchase or construction loan only the funding fee can be financed, and all other fees and charges are paid when the loan closes.

USDA: 6 per cent of the sales price

USDA's Single Family Housing Guaranteed Loan Program is governed by handbook HB-1-3555. Chapter 6, on loan purposes, revised on 5 May 2025, carries the rule in paragraph 6.2 under the heading of interested party concessions: contributions from the seller or from other interested parties are limited to 6 per cent of the sales price. The base is the sales price alone; unlike Fannie Mae's, the sentence does not refer to the appraised value, and unlike the VA's it does not refer to a valuation notice.

The handbook attaches conditions to what the money may do. A contribution must represent an eligible loan purpose under the same paragraph. It cannot pay an applicant's personal debt, which the VA page, by contrast, lists among its permitted concessions. And it cannot be used as an inducement to purchase by including movable personal property such as furniture, cars, boats or electronics; household appliances that are typically part of a home purchase are not caught by that restriction.

Three items are outside the 6 per cent. Closing costs or prepaid items that the lender pays through premium pricing are not included. Nor are funds the seller provides for repairs, though the handbook requires repair funds to be held in escrow and refers to its Chapter 12 for the escrow rules. The third item is the buyer's real estate commission, covered in the next section.

A worked example, with illustrative figures: on a sales price of US$250,000 the limit is US$15,000. A seller who pays US$12,000 of the buyer's closing costs and prepaid items has used 4.8 per cent. If the same seller also funds US$3,000 of repairs and pays US$6,250 to the buyer's broker, which is 2.5 per cent of the price, neither sum is added, so the counted contribution remains US$12,000 although the seller's total outlay for the buyer is US$21,250.

The handbook makes the lender responsible for ensuring that the limit and the eligible purposes are met. The passage read does not say what becomes of an amount above 6 per cent.

The buyer's broker under each programme

A separate question is whether a commission paid by the seller to the buyer's broker uses up part of these limits. Each programme has answered, though not in the same kind of document.

USDA's answer is in the handbook itself: seller funds for the buyer's real estate commission fees are not included in the interested party contribution limitation.

Fannie Mae's section does not mention the buyer's broker by name. It excludes common and customary fees typically paid by the seller under local custom. The Northern Virginia Association of Realtors reported in April 2024 that Fannie Mae had confirmed to the trade that a buyer's agent commission paid by the seller or the seller's agent under local common and customary practice need not count towards the limits. The same article is the source of the one reported Freddie Mac statement given above.

For FHA, HUD's statement of 27 March 2024, release 24-063, said that seller-paid buyer-side commissions and fees are not treated as interested party contributions where they are paid as a matter of state or local law or local custom and are reasonable in amount, provided all other requirements are met. For the VA, Circular 26-24-14 of 11 June 2024 says the department does not treat a seller's payment of buyer-broker charges as a seller concession, and the VA's closing-costs page lists the commission and fees of the buyer's real estate professional among the costs buyer and seller can negotiate.

Fannie Mae's and FHA's positions share a condition that the VA and USDA texts do not carry: custom. The exclusion at Fannie Mae and at FHA rests on the seller's payment being the local practice, or on local law in FHA's case, and FHA adds that the amount must be reasonable. None of the documents read defines the custom of a given market or names a reasonable figure, so the classification of a particular commission is made by the lender on the facts of the sale. USDA and the VA state their exclusion without that qualifier.

A seller's credit is negotiated in the contract, but it is the buyer's loan programme that decides how much of it counts, and against which figure.

The same reasoning explains why the split of a seller's money between lines of the settlement statement matters. A sum described as a closing-cost credit, a prepaid item, a debt payoff, a repair fund or a broker's commission is counted, capped or left out differently by each programme, and under Fannie Mae's rule a sum that is not on the statement at all makes the loan ineligible.

Kooky, from Shaka

Kooky edits Agents Estate and builds Shaka, the payment router he made for real estate professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.

About Kooky and Shaka →