Yes, you can use gifted money for your down payment — if the right person gives it and it moves the right way. Gift letter rules, the paper trail, and the limits by loan type.
What Are Seller Concessions? How Buyers Use Them to Lower Cash to Close
Seller concessions are money the seller agrees to put toward your side of the transaction — closing costs, prepaid taxes and insurance, or an interest-rate buydown — applied as a credit at closing instead of cash you’d otherwise bring to the table. They don’t lower the price of the house. They lower the check you write on closing day, which for a lot of buyers is the number that actually decides whether the deal happens. Every loan program caps them, every cap works a little differently, and there’s one appraisal-shaped catch nobody mentions until it bites. Here’s the honest version.
What seller concessions actually are
When you buy a home, you owe more than the down payment. Closing costs — lender fees, title work, appraisal, recording — plus “prepaids” like the first year of homeowners insurance and a cushion of property taxes for your escrow account typically add another 2% to 4% of the purchase price (general — confirm current for your transaction). The CFPB’s closing-cost explainer notes that seller credits are negotiable but often show up in a higher purchase price — which is exactly the trade this article is about.
A seller concession moves some or all of that burden to the seller. It shows up as a credit on your Closing Disclosure, dollar for dollar against what you owe at the table. The seller nets less from the sale; you bring less cash. Nothing changes hands early, and you never see the money — it’s settlement-statement arithmetic.
Concessions are one lever among several when you’re structuring an offer — earnest money and making a strong offer covers the rest of the toolkit.
Seller concession caps by loan program
Lenders and agencies cap concessions because unlimited credits invite inflated prices. The caps below are current as of this writing — all figures are general, so confirm current limits with your lender before you write the offer.
| Program | Maximum concession | Based on |
|---|---|---|
| Conventional — primary/second home, less than 10% down (LTV above 90%) | 3% | Lower of sales price or appraised value |
| Conventional — primary/second home, 10% to 25% down (LTV 75.01–90%) | 6% | Lower of sales price or appraised value |
| Conventional — primary/second home, more than 25% down (LTV 75% or less) | 9% | Lower of sales price or appraised value |
| Conventional — investment property | 2% at any LTV | Lower of sales price or appraised value |
| FHA | 6% | Sales price |
| VA | 4% for true concessions; normal closing costs don’t count | Reasonable value (VA appraisal) |
| USDA | 6% | Sales price |
A few notes worth the ink. On conventional loans, Fannie Mae’s Selling Guide caps what it calls interested party contributions at 3%, 6%, or 9% of the lower of the sales price or appraised value, depending on your down payment — and holds investment properties to 2% no matter what. On FHA loans, HUD’s 6% cap is broad but strict: seller-paid buydowns, discount points, and even the upfront mortgage insurance premium all count toward it, and anything over 6% gets treated as an inducement to purchase that reduces your loan amount.
VA is the odd one out, in a good way. The seller can pay all of a veteran’s normal, allowable closing costs with no percentage cap at all. The 4% limit applies only to true concessions — things the seller isn’t customarily expected to pay, like the VA funding fee, prepaid taxes and insurance, or paying off a buyer’s debts to help them qualify. USDA allows up to 6% of the sales price, and the credit must go to eligible loan costs — it can’t pay off the buyer’s personal debt.
What concessions can pay for
Within the caps, seller credits can cover most of what stands between you and the keys:
- Closing costs — lender fees, title insurance, appraisal, recording, and the rest of the fee sheet.
- Prepaids — the first year of homeowners insurance, escrow deposits for property taxes, and prepaid interest.
- Discount points and buydowns — the biggest-impact use for many buyers is a temporary or permanent rate buydown, where the seller’s credit prepays interest to lower your rate for the first year or two, or for the life of the loan.
- Program-specific fees — FHA’s upfront mortgage insurance premium, the VA funding fee, and USDA’s upfront guarantee fee can all be paid with seller credits, within each program’s rules.
Our take: if you have to choose, a seller-paid buydown usually does more work than the same dollars scattered across fees, because it changes your monthly payment — the number you live with for years — not just closing day.
What concessions cannot pay for
The hard limits, and they are genuinely hard:
- Your down payment. On conventional loans, Fannie Mae explicitly prohibits interested party contributions from funding the down payment, reserves, or your minimum required contribution. FHA is the same: the seller cannot fund your 3.5% minimum required investment. (VA and USDA typically require no down payment, so the issue rarely comes up.)
- Cash back to you. Credits can’t exceed your actual costs. If the seller agrees to $12,000 and your costs total $9,000, the extra $3,000 doesn’t become walking-around money — it’s simply lost unless the contract is restructured. Size the credit to the real number.
- Your reserves or debts (mostly). Conventional credits can’t be used to meet reserve requirements, and USDA credits can’t retire personal debt. VA is the narrow exception — debt payoff to help a veteran qualify can count as a concession, inside the 4%.
Concessions reduce closing costs, not your down payment — if you’re still working out that number, start with how much is a down payment on a house.
A $10,000 price cut vs. a $10,000 concession
Here’s the negotiation math that surprises people, using illustrative numbers. Say you’re buying a $400,000 home in Security-Widefield with 5% down on a conventional loan, and the seller is willing to give up $10,000 — as either a price cut or a concession. (A $10,000 credit is 2.5% of the price, comfortably inside the 3% cap at this down payment.)
Take the price cut to $390,000, and your down payment falls by only $500 — 5% of the $10,000. Your loan shrinks by $9,500, which trims the monthly payment by roughly $60 (illustrative — the exact figure depends on your rate and terms). Meaningful over 30 years, nearly invisible on closing day.
Take the $10,000 concession instead, and your cash to close drops by up to the full $10,000. Your loan amount and payment stay the same — unless you point the credit at a buydown, in which case the payment falls too, often by more than the price cut would have managed.
Our take: for a cash-tight buyer, the concession wins, and it isn’t close. A $10,000 price cut saves you about $500 today; a $10,000 concession can save you $10,000 today. If you’re flush with cash and planning to keep the home for decades, the price cut has real long-run merit — lower loan, lower taxable basis for the seller’s next buyer to argue about, slightly lower payment forever. But most first-time buyers aren’t optimizing year 25; they’re trying to survive the closing table. You can run your own numbers with our seller concessions calculator before you write the offer.
The appraisal caveat
Now the catch. Concessions often get “baked in” — instead of accepting $395,000 clean, the seller agrees to $400,000 with a $10,000 credit. Everyone’s happy until the appraiser weighs in, because the home now has to appraise at the full $400,000, and your lender will use the lower of the sales price or appraised value to size the loan.
If the appraisal comes in at $392,000, you don’t just lose the gap — you’re renegotiating the whole structure, credit included. Appraisers also flag heavy concessions in their reports and consider whether comparable sales carried similar credits, so a price pushed up to absorb a large credit is exactly the kind of file that draws scrutiny. An appraisal protects the lender’s collateral position; it isn’t a condition report — appraisal vs. inspection explains the difference.
The appraisal comes back during the contract period, along with inspections — see what happens after your offer is accepted for the full timeline. The practical rule: a concession works cleanly when the price still matches the market. It gets fragile when the price is stretched to fund it.
How to negotiate concessions in Colorado Springs
Whether concessions are on the table depends on the market you’re standing in:
- Read the days-on-market. A listing that’s sat for 45 days in Fountain or on the east side is a concession candidate. A four-day-old listing in Old North End with three offers is not.
- Check the builders. New-construction builders along the Powers corridor and in Banning Lewis Ranch routinely advertise closing-cost credits and buydown packages — often through their affiliated lender. The credit is real either way, but compare the whole deal, not just the sticker.
- Ask for a purpose, not just a number. “Seller to credit $10,000 toward buyer’s closing costs, prepaids, and rate buydown” gives your lender room to allocate the money where it does the most good.
- Mind your cap before you write. A 6% ask on an FHA deal fits; the same ask on a conventional loan with 5% down exceeds the 3% cap and has to be restructured.
If you’re not sure which structure fits your file, a local mortgage broker in Colorado Springs can model both versions of the offer — price cut and concession — before you sign anything.
Frequently asked questions
Do seller concessions increase my loan amount? Not by themselves — a credit at closing doesn’t change what you borrow. But if the price was raised to absorb the credit, you’re financing that higher price, so you’re effectively rolling your closing costs into the loan. That can still be a smart trade for a cash-tight buyer; just make it knowingly.
Can seller concessions pay my down payment? No on conventional and FHA loans — both programs explicitly prohibit it. Down payment funds must come from you, or from allowable sources like gift funds. VA and USDA loans typically require no down payment, so the question usually answers itself.
What happens if the concession exceeds my program’s cap? The excess doesn’t vanish quietly. On FHA loans, contributions over 6% are treated as inducements to purchase and reduce the base your loan is calculated on; conventional loans handle overages similarly. In practice your lender will catch it and the contract gets amended — better to size it correctly up front.
Can I get unused concession money as cash at closing? No. Credits generally can’t exceed your actual closing costs and prepaids, and leftover amounts are forfeited on most programs. Have your lender estimate your real cash-to-close first, then ask for that number — not a round one.
Are seller concessions a sign something is wrong with the house? Not inherently. They’re a financing tool, not a confession. That said, a concession is not a substitute for an inspection — if a seller offers a credit “in lieu of repairs,” get the repair bid in writing before you decide whether the math works.
719 Lending, NMLS #1601989. Equal Housing Opportunity. This article is educational only and is not financial or legal advice; program details and figures are general — confirm current. 719 Lending is not affiliated with or endorsed by any government agency. Last updated: July 2026.
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