No — seller credits cannot be used for a down payment on any major mortgage program. Fannie Mae, Freddie Mac, FHA, VA, and USDA all require your down payment to come from your own verified funds or an approved source such as a documented family gift. What seller credits can do is cover most of your closing costs, which keeps more of your own cash available for the down payment itself.
Why the Down Payment Has to Be Your Money
Fannie Mae’s Selling Guide states the rule plainly: interested party contributions, which include seller credits, cannot “be used to make the borrower’s down payment, meet financial reserve requirements, or meet minimum borrower contribution requirements.”1Fannie Mae. Interested Party Contributions (IPCs) Freddie Mac imposes the same restriction. FHA requires a minimum 3.5 percent down payment from the borrower’s own verified funds. VA and USDA follow the same principle even where they allow zero-down financing.
The reasoning is straightforward. Lenders want you to have your own money at stake in the property. A borrower who put personal savings into the deal is statistically less likely to walk away from the mortgage. If the seller could hand you the down payment through a credit, you would carry no equity from day one, and the lender would bear all of the risk.
Lenders verify the source of your down payment through bank statements and gift documentation. Any attempt to disguise a seller credit as buyer funds — for instance, inflating the purchase price so the seller can quietly route money back to you — is mortgage fraud, not a workaround.
What Seller Credits Can Pay For
Closing costs typically run one to three percent of the purchase price, and seller credits can absorb most of them. Eligible items generally include:
- Loan origination fees, often around one percent of the loan amount.
- Appraisal fees, typically $300 to $500 for a standard single-family home.
- Title insurance and title search fees, including both owner’s and lender’s policies.
- Attorney and settlement fees for document preparation and closing coordination.
- Recording fees charged by the local government to file the deed and mortgage.
- Prepaid items: property tax escrow deposits, homeowner’s insurance, and prepaid mortgage interest through the end of the closing month.
- A one-year home warranty covering major systems and appliances.
One of the highest-value uses is buying down your interest rate with discount points. Each point costs one percent of the loan amount and typically lowers your rate by about 0.25 percent. Fannie Mae explicitly allows seller-funded buydowns, including temporary 2-1 buydowns that reduce your rate by two percentage points in the first year and one in the second, though these funds still count against the concession cap for your loan type.2Fannie Mae. Temporary Interest Rate Buydowns
How Much the Seller Can Credit You
Every program caps total seller credits as a percentage of the sale price or appraised value, whichever is lower. Going over the cap doesn’t just cost you the extra dollars — it can trigger an underwriting adjustment that reduces the property value the lender uses, which can undo your approval.
Conventional Loans
Conventional caps scale with your down payment:1Fannie Mae. Interested Party Contributions (IPCs)
- Less than 10 percent down (LTV above 90 percent): 3 percent.
- 10 to 24.99 percent down (LTV between 75.01 and 90 percent): 6 percent.
- 25 percent or more down (LTV at or below 75 percent): 9 percent.
On a $400,000 home with 5 percent down, the seller can contribute no more than $12,000. Move to 10 percent down, and that cap doubles to $24,000.
FHA Loans
FHA allows seller concessions up to 6 percent of the sale price. Anything above that is treated as an inducement to purchase and reduces the mortgage amount FHA will insure.3U.S. Department of Housing and Urban Development. Seller Concessions and Verification of Sales Because FHA borrowers often put down only 3.5 percent, 6 percent typically covers closing costs comfortably.
VA Loans
VA draws a distinction between closing costs and concessions. The seller can pay all of your normal closing costs — origination, appraisal, title, recording — with no percentage cap. A separate 4 percent limit applies only to concessions, which the VA defines as extras beyond standard closing costs: the VA funding fee, paying off your debts, or prepaying your hazard insurance.4Veterans Affairs. VA Funding Fee and Loan Closing Costs That 4 percent is calculated from the reasonable value stated on the VA Notice of Value, not the sale price.
USDA Loans
USDA Rural Development loans cap seller contributions at 6 percent of the sale price. The credit must go toward eligible loan purposes, and fees the seller normally pays anyway, such as the real estate commission, do not count against the 6 percent limit.5USDA Rural Development. Loan Purposes and Restrictions
Investment Properties
If the home is not your primary residence, conventional guidelines tighten sharply. Fannie Mae caps interested party contributions on investment properties at 2 percent of the lower of sale price or appraised value, no matter how much you put down.1Fannie Mae. Interested Party Contributions (IPCs) On a $300,000 rental, that’s $6,000. Plan to pay most closing costs yourself on an investment purchase.
What Happens If the Credit Is Too Big
Two different problems arise with oversized credits, and they have different consequences.
If the credit exceeds the program’s percentage cap, Fannie Mae treats the excess as a sales concession and deducts it from the property value used for underwriting.6Fannie Mae. DU Job Aids – Excess Interested Party Contributions That lowers the value the lender uses to calculate your loan-to-value ratio, and you may need a larger down payment to qualify.
If the credit stays under the percentage cap but exceeds your actual closing costs, the surplus does not come to you as cash. Caught early, the standard fix is to reduce the sale price and the credit by the same amount. Caught after loan documents are prepared, the unused portion typically reverts to the seller. Either way, leftover seller credit money never ends up in your pocket.
Cash-Back Arrangements Are Fraud
Some buyers and sellers try to defeat the down-payment prohibition by inflating the sale price and routing the difference back to the buyer outside of closing. It is illegal. A Financial Crimes Enforcement Network investigation led to convictions on mail fraud and financial structuring charges in a scheme where defendants concealed credits between $42,000 and more than $137,000 per transaction, with total losses above $2.5 million.7Financial Crimes Enforcement Network. Proactive Suspicious Activity Report Review Leads to Indictments in Cash Back Mortgage Fraud Scheme
Smaller versions of the same idea — a side agreement in which the seller reimburses you after closing, or a credit that quietly exceeds real costs — can lead to loan denial, rescission, or federal charges. Lenders specifically watch for inflated purchase prices relative to comparable sales and unexplained credits on the settlement statement.
Getting the Credit Into the Contract
A seller credit only works if the purchase agreement spells it out clearly. State the exact dollar amount or percentage, and identify what it covers: general closing costs, specific repairs, or a rate buydown. Vague language slows underwriting because the lender has to confirm the credit fits program limits.
The lender reviews the signed contract to verify the credit does not exceed the cap or your estimated closing costs. Once approved, the credit appears as a line-item adjustment on your Closing Disclosure, the five-page form you receive at least three business days before closing. If the amount changes during negotiations — say, after an inspection turns up needed repairs — a signed addendum is required so the lender can re-verify compliance.
If the credit is earmarked for repairs that cannot be completed before closing, your lender may require an escrow holdback. Fannie Mae guidelines call for withholding 120 percent of the estimated repair cost in a custodial escrow account, or 100 percent if a guaranteed fixed-price contract is in place. Funds are released after the work is completed and verified, and any leftover balance is applied to reduce your loan principal.8Fannie Mae. Requirements for Verifying Completion and Postponed Improvements