How Much Can a Seller Contribute on a Conventional Loan?

On a conventional loan, a seller can contribute up to 3%, 6%, or 9% of the property value toward your closing costs on a primary residence or second home, depending on your down payment. For an investment property, the cap is a flat 2% no matter how much you put down. These limits are set by Fannie Mae and Freddie Mac and cover contributions from any interested party in the transaction, including the seller, builder, developer, or real estate agent.¹

The Tiers for a Primary Residence or Second Home

The cap is tied to your loan-to-value ratio, which is the flip side of your down payment. The smaller the down payment, the less a seller is allowed to chip in.

Down payment under 10% (LTV above 90%): up to 3% of the property value.
Down payment of 10% to just under 25% (LTV of 75.01% to 90%): up to 6%.
Down payment of 25% or more (LTV of 75% or less): up to 9%.¹

The logic is straightforward. A buyer with less equity poses more risk to the lender, so outside help at closing is limited. As your stake in the property grows, the rules loosen and the seller can cover a larger share of the closing bill.

The 2% Cap on Investment Properties

Investment properties get a much tighter rule. The seller contribution is capped at 2% of the property value regardless of your down payment.¹ A buyer putting 20% down and a buyer putting 50% down both get the same 2% ceiling. The flat limit reflects the higher default risk lenders associate with non-owner-occupied properties.

Seller money also cannot be used to satisfy the cash reserves lenders typically require on investment property loans. Fannie Mae prohibits interested party contributions from being applied to financial reserves or to any minimum borrower contribution.¹ Those reserves have to come from your own verified funds.

What the Percentage Is Applied To

The cap is calculated against the lower of the contract sales price or the appraised value, not the loan amount.¹ That keeps contributions from being calculated against an inflated price the appraisal will not support.

Say you agree to buy a home for $400,000 with 15% down, which puts you in the 6% tier. If the appraisal comes back at $390,000, the maximum contribution is 6% of $390,000, or $23,400, not the $24,000 you would get using the contract price. A low appraisal shrinks both the dollar cap and, potentially, the credit you negotiated. Watch the appraisal timeline so you can renegotiate before final loan documents are drawn up if the numbers move.

What Seller Contributions Can Pay For

Fannie Mae calls these credits “financing concessions.” They can cover:

Closing costs and prepaids, including loan origination fees, title insurance premiums, recording fees, appraisal fees, prepaid property taxes, and homeowners insurance premiums.
HOA assessments for up to 12 months after settlement. Payments beyond 12 months are treated differently and can create eligibility problems.¹
Discount points that lower the interest rate for the life of the loan.
A temporary interest rate buydown, such as a 2-1 or 3-2-1 buydown. Fannie Mae allows these on fixed-rate loans for primary residences and second homes as long as the rate reduction does not exceed 3 percentage points and the rate increases by no more than 1 percentage point per year. The lender still qualifies you at the full note rate, and the buydown funds count toward your contribution cap.²

What Seller Contributions Cannot Pay For

Three hard limits apply on a conventional loan:

Your down payment. The minimum down payment has to come from your own verified funds or an eligible gift source such as a family member.
Cash reserves the lender requires you to hold after closing.
Any minimum borrower contribution the loan scenario requires from personal funds.¹

If the seller’s credit ends up larger than your actual closing costs and prepaids, the surplus does not come back to you as cash. The credit is simply reduced to match your eligible expenses. Any side arrangement to route the excess back to you outside the closing disclosure can be treated as mortgage fraud.

Customary Seller-Paid Costs That Sit Outside the Cap

Fees the seller pays because local custom says the seller pays them are not counted against the contribution limits. Fannie Mae’s guidelines state that “typical fees and/or closing costs paid by a seller in accordance with local custom” are exempt from the maximum financing concessions.¹

What counts as local custom varies by market. Common examples include transfer taxes, owner’s title insurance premiums, or certain recording fees that sellers traditionally cover in a given area. Those are part of the normal cost structure of the transaction, not a concession designed to sweeten the deal. In practice, a seller can pay thousands in customary costs on top of the percentage-based cap without creating a compliance problem.

What Happens If the Contribution Exceeds the Cap

Going over the cap does not just get trimmed back. Fannie Mae treats the overage as a “sales concession” and deducts it from the property’s sales price. The lender then recalculates your LTV and CLTV using the reduced figure or the appraised value, whichever is lower.¹

That recalculation can push your LTV into a different tier, change your private mortgage insurance requirements, or make the loan ineligible for purchase by Fannie Mae or Freddie Mac altogether. Non-financial concessions such as furniture, decorator allowances, or gift cards are always treated as sales concessions and are deducted from the sales price the same way.³ Get a solid estimate of your total closing costs early and size the seller credit to match, rather than asking for the maximum and hoping the numbers work.

How the Conventional Cap Compares to FHA and VA

Seller contribution limits vary noticeably across loan programs:

FHA loans allow the seller to contribute up to 6% of the sales price or appraised value, whichever is lower, regardless of the down payment.
VA loans let the seller pay all of the buyer’s closing costs, with no percentage cap on closing costs specifically. Other seller concessions, such as paying off the buyer’s debts, prepaying property taxes beyond the norm, or covering the VA funding fee, are capped at 4% of the home’s reasonable value.⁴
Conventional loans use the 3%/6%/9% tiers for a primary or second home, or the flat 2% for an investment property.

For a buyer putting down less than 10%, an FHA loan allows double the seller help a conventional loan does at that down payment level (6% versus 3%). In markets where buyers rely on seller credits to offset closing costs, that difference alone can tip the choice of loan program.

Disclosure and Fraud Risk

Every seller contribution has to appear on the official Closing Disclosure. Federal rules under the TILA-RESPA Integrated Disclosure framework require seller credits to show up in specific spots: individual costs the seller pays go in the seller-paid column of the closing cost details, and any lump-sum credit goes on a dedicated “Seller Credit” line in the borrower’s transaction summary.⁵

Any side deal, undisclosed rebate, or off-the-books credit between buyer and seller that is hidden from the lender can constitute federal mortgage fraud. Under 18 U.S. Code 1014, making a false statement to influence a mortgage lender’s decision carries penalties of up to $1,000,000 in fines and up to 30 years in prison.⁶ Put every dollar of the negotiated credit into the purchase agreement from the start and let it flow through the standard closing process.

1
Fannie Mae. Interested Party Contributions (IPCs)
2
Fannie Mae. Temporary Interest Rate Buydowns
3
Freddie Mac. Guide Section 5501.6
4
U.S. Department of Veterans Affairs. VA Funding Fee and Loan Closing Costs
5
Consumer Financial Protection Bureau. 12 CFR 1026.38 – Content of Disclosures for Certain Mortgage Transactions (Closing Disclosure)
6
Office of the Law Revision Counsel. 18 U.S. Code 1014 – Loan and Credit Applications Generally