Limits for USDA Loan Seller Concessions and How to Use Them
Seller concessions can be used to cover your out-of-pocket closing costs, with the USDA setting the maximum contribution limit at 6% of the home’s purchase price.
Purchasing a home requires buyers to have cash on hand to cover closing costs, even when taking out a zero-down payment USDA loan. As a result, some borrowers opt to negotiate seller concessions to cover these costs, allowing them to purchase sooner or put their savings to use for other purposes.
What Are Seller Concessions?
Seller concessions are funds a home seller gives to the buyer at closing to cover some or all of their closing costs. For homebuyers, concessions reduce the amount of cash they'll need to come up with to close.
For example, the buyer needs $10,000 in down payment funds and $8,000 in closing costs for things like the title, appraisal, loan fees etc. The seller agrees to $8,000 in seller concessions. The buyer’s cash to close drops from $18,000 to $10,000.
Since USDA loans do not require a down payment, seller concessions can make it possible to purchase a home with zero money out of pocket. As the USDA program is designed to help lower-income borrowers who may have trouble saving, seller concessions can help put more buyers on the path to homeownership.
“For buyers, these concessions reduce the upfront expenses in pursuing homeownership, thus making it more affordable for those with limited initial funds,” says Alexei Morgado, Realtor and founder of Lexawise.
“For buyers, these concessions reduce the upfront expenses in pursuing homeownership, thus making it more affordable for those with limited initial funds."
Note: You may also see seller concessions referred to as seller contributions or interested-party contributions (which can also include funds from other sources, such as real estate agents, who have a financial interest in the sale).
Why Do Sellers Offer Concessions?
Sellers typically offer concessions as an incentive for buyers to purchase their homes. Because of this, you'll rarely find sellers willing to agree to concessions on highly desirable properties in hot real estate environments. Instead, you're most likely to receive concessions on properties that have been sitting on the market or otherwise have difficulty attracting buyers.
In some cases, however, motivated homeowners urgently needing to sell will offer seller concessions to get their listing under contract as quickly as possible.
According to the National Association of Realtors (NAR), 24% of sellers offered concessions to prospective buyers in 2024.
What Can You Use USDA Seller Concessions For?
As a buyer, you can use USDA seller concessions to pay down the expenses you'd otherwise be responsible for when closing on your purchase. This can include costs that the USDA considers "reasonable and customary," such as:
Loan origination fees
Credit report fees
Title research and insurance
Appraisal costs
Documentary stamp fees
Lender discount points
Prepaid taxes
Prepaid insurance premiums
For most borrowers, USDA closing costs typically run between 3% and 6% of the price of the home they’re purchasing.
Restrictions on Using USDA Seller Concessions
The funds from seller concessions can only be used to pay down your closing costs. You cannot use them as a down payment or to reduce your loan balance, nor can you use them to cover other costs associated with your purchase, such as moving expenses or home improvements.
If your agreed-upon USDA loan seller concessions exceed your closing costs, you cannot receive the extra funds back as cash.
Is There a Limit for USDA Loan Seller Concessions?
USDA lending guidelines establish a limit for seller concessions at 6% of the price you’re paying for the home.
For Example: You and the seller agree to a sales price of $225,000 with seller concessions for the USDA’s maximum limit of 6%. In this scenario, you would be eligible for up to $13,500 to cover the costs of closing on your new home.
Keep in mind that not all sellers offering concessions will agree to the full 6% limit. Negotiations often result in a lesser figure, such as 2% or 3%, which can reduce your out-of-pocket expense while not covering your closing costs entirely.
Seller-Paid Repair Costs
A seller may offer to pay for the costs of repairing certain aspects of a home in order to bring it in line with the USDA's minimum property requirements. When it's not practical to complete the work before closing, the seller may elect to contribute funds to a repair escrow so that improvements can be made after the home has sold.
These seller-paid repair costs are not considered the same as USDA loan seller concessions and do not count toward the 6% limit.
However, the seller may also offer concessions in lieu of repairs that aren’t holding up closing. They issue those funds at closing instead of putting them in a repair escrow account. In this case, the concessions do count toward the 6% maximum.
Using Up All Your Seller Concessions
Sometimes, the dollar amount of your agreed-upon seller concessions will be more than the estimated closing costs on your new home. Since you cannot use USDA loan seller concessions to pay down your mortgage balance or get refunded as cash, what can you do to avoid losing this extra value?
In most cases, the best option for excess seller credits is to purchase lender discount points that will reduce the interest rate on your loan. Each lender discount point costs 1% of your mortgage total and reduces your interest rate. Your rate reduction varies by lender and the day’s mortgage rate pricing.
What else can you use your seller concessions for in the event that they’re more than your USDA closing costs?
Prepay property taxes
Prepay insurance premiums
Potentially cover future HOA dues
Some buyers even attempt to renegotiate their purchase agreement at a lower sales price with a reduced seller contribution to end up needing to borrow less while still having all of their closing costs covered.
Alternatives to USDA Seller Concessions
It isn’t always easy to get sellers to agree to contribute toward your closing costs, particularly for newly listed or desirable properties or in real estate markets where there is no shortage of eager buyers.
If you’re not able to negotiate seller concessions as part of your purchase agreement, here are alternatives that can still lower the out-of-pocket closing costs on your USDA loan.
Closing Cost Assistance
Many USDA borrowers are eligible for down payment assistance (DPA) programs, which can come in the form of grants or forgivable/low-cost loans. Since the USDA does not require you to make a down payment, these funds can generally be used as closing cost assistance.
Down payment/closing cost assistance programs are typically offered by state, county, and municipal governments or through localized non-profit organizations. Some lenders even have their own DPA programs, particularly if you’re working with a community bank or credit union.
The best part about closing cost assistance? It's more flexible than seller concessions because if you qualify for more than your actual closing costs, you can use the remaining amount to reduce your mortgage balance.
Related: 7 Places to Find Down Payment Assistance (With Examples)
Lender-Paid Closing Costs
Another alternative to seller concessions on USDA loans is lender-paid closing costs. Often referred to as lender credits, lender-paid closing costs are the opposite of lender discount points. In exchange for a marginally higher interest rate, your lender may be willing to cover some or all of your closing costs.
While this strategy will slightly increase your monthly payments, it can reduce your out-of-pocket expenses and let you purchase a home when you might otherwise not be able to due to a lack of savings or access to cash.
Do Other Types of Loans Allow Seller Concessions?
Yes, you can receive seller concessions even if you apply for another type of mortgage. Here's how each program's guidelines stack up against the USDA seller contribution limits:
Loan Type | Max Concession |
USDA | 6% |
FHA | 6% |
VA | 4% |
Conventional | 3% to 9%* |
*Depends on the down payment
Pros and Cons of Seller Concessions on USDA Loans
Negotiating seller concessions on USDA loans has both advantages and disadvantages worth considering before asking for them as part of your purchase agreement. Here are a few of the pros and cons to keep in mind.
Pros
Potential zero out-of-pocket closing: Although USDA loans do not require a down payment, you will still need to come up with the funds to cover your closing costs. This can range from 3% to 6% of the total purchase price for most buyers. Seller concessions can alleviate this burden and allow you to buy at no out-of-pocket cost.
Free up cash : Even if you have the funds available to cover your closing costs, negotiating seller concessions allows you to keep that cash and use it for other purposes, such as maintaining a safety net in reserve or paying for things like new furniture, home upgrades, or moving expenses.
High seller concession limits: Conventional loans restrict borrowers making less than a 10% down payment to a maximum seller concession of 3%. This reduced limit is not always enough to cover all associated closing costs. The USDA loan seller concession limit of 6% can typically cover required expenses for most buyers.
Cons
Can make your offer less appealing: Funds offered as concessions are deducted from the seller's closing proceeds, lowering the amount of cash they receive from the transaction. This often puts offers asking for concessions at a disadvantage if the seller is in no rush to sell or when multiple buyers are interested in a property.
May need to offer more to offset concessions: To compensate for requesting seller concessions, buyers frequently offer to purchase homes for an increased amount – sometimes even above the listing price. While offering more may help secure concessions to cover your closing costs, the higher loan balance will mean larger monthly payments and greater lifetime interest.
Not often available for desirable properties: Owners of highly sought-after properties are less likely to offer seller concessions simply because they do not need to. If you must negotiate concessions in order to afford to buy, you'll likely be restricted to less desirable or otherwise more difficult-to-sell homes.
Should You Ask for Seller Concessions?
USDA loan seller concessions can be used to cover just about all the costs associated with purchasing a home and taking out a mortgage. At the maximum limit of 6%, this is often enough to avoid most or all out-of-pocket expenses at the closing table. However, asking for seller concessions does have its disadvantages, such as making your offer less competitive and potentially increasing the amount you need to borrow.
Get in contact with a USDA-approved lender today for a personalized estimate of prospective closing costs and ideas for best utilizing seller concessions.
