Seller concessions on an investment property: the 2% cap and the math behind it

The short answer

A seller concession, also called a seller credit, is money the seller agrees to put toward your closing costs. On a conventional mortgage for an investment property that will be sold to Fannie Mae or Freddie Mac, the most the seller and other interested parties can contribute is 2% of the lower of the price or the appraised value. That is true at any loan-to-value ratio.

For a home you will live in, the same agencies allow 3%, 6%, or 9% depending on your down payment. Investors often hear those bigger numbers and write offers that cannot close as written. The 2% cap is the one that applies to a rental or other investment purchase on these loans.

Inside the cap, a credit lowers the cash you bring to closing. It does not lower the loan, the down payment, or the monthly payment. Whether a credit or a price cut is better depends on whether cash today or cash flow later matters more on that deal.

What the 2% can and cannot pay for

Can pay for. Under Fannie Mae's rules, financing concessions can go toward your closing costs, including prepaids such as escrow deposits for taxes and insurance, and toward HOA assessments for up to 12 months after closing. Seller money can also fund an interest rate buydown, and that buydown counts toward the same cap.

Cannot pay for. Neither agency lets seller money cover the down payment or the cash reserves the lender requires. The credit also cannot be larger than your actual closing costs. Fannie Mae treats any amount over the closing costs as a sales concession, so you do not get the leftover back as cash.

Who counts as an interested party. The seller, the builder or developer, the real estate agents, and anyone affiliated with them. A credit from your own agent's commission counts toward the same cap. A lender credit you get by taking a higher interest rate does not count, on Fannie Mae's rules, even when the lender has a role in the sale.

What does not count against the cap. Fees the seller customarily pays under local custom, such as the seller's share of title or transfer costs in many areas, are outside the limit. So is a normal proration of property taxes where taxes are paid in arrears. Ask the lender which local seller-paid items they exclude.

What happens if you ask for more than 2%

Fannie Mae and Freddie Mac both treat any financing concession above the cap as a sales concession. Fannie Mae's rule is that sales concessions are subtracted from the sales price, and the loan-to-value ratio is recalculated on the lower figure. So the extra credit does not just get ignored. It can shrink the loan you qualify for.

In practice, many lenders will ask you and the seller to amend the contract down to the cap before closing rather than close a loan built on a reduced price. Either way, the money over 2% does not reach your closing costs. Know the cap before you write the offer so you negotiate with numbers that will actually close.

Example

Illustrative example. Credit vs price cut on a rental. These are made-up numbers to show the math, not a quote, a rate offer, or a market average. You are buying a single-family rental under contract at $300,000, and it appraises at $300,000. You are using a conventional investment loan at 75% loan-to-value, a 30-year fixed rate of 7.25% picked for the example, and the lender estimates your closing costs and prepaids at $9,000.

No credit. The loan is $225,000, the down payment is $75,000, and closing costs are $9,000, so you bring $84,000. Principal and interest is about $1,535 a month.

A 2% credit at the same price. The cap is 2% of $300,000, or $6,000, which is less than the $9,000 of closing costs, so all of it can be used. The loan and down payment stay at $225,000 and $75,000, closing costs fall to $3,000, and you bring $78,000. The payment is still about $1,535.

A $6,000 price cut instead. At $294,000, the loan is $220,500 and the down payment is $73,500. With the same $9,000 of closing costs you bring $82,500. Principal and interest is about $1,504 a month.

Reading the result. The credit saves $4,500 more cash at closing than the price cut ($78,000 versus $82,500). The price cut leaves a loan $4,500 smaller and a payment about $31 a month lower, roughly $370 a year. If cash is what limits how many deals you can do, the credit usually wins. If the rent barely covers the payment, or you plan to hold for many years, the price cut may be worth more. Run both through your own numbers.

Asking for more. If you asked this seller for a $9,000 credit, only $6,000 fits under the cap. Under Fannie Mae's rule, the other $3,000 would be a sales concession, the price used for the loan would drop to $297,000, and the most you could borrow at 75% would be $222,750 instead of $225,000.

The price-bump trick and the appraisal

A common move is to raise the offer price and have the seller credit the difference back. In the example, that would be $306,000 with a $6,000 credit, which nets the seller about the same as $300,000 with no credit.

It only works if the house appraises at the higher price. If it appraises at $306,000, the loan at 75% is $229,500, the down payment is $76,500, closing costs net of the credit are $3,000, and you bring $79,500. The payment is about $1,566 a month because you borrowed more.

If it appraises at $300,000, the lender lends 75% of $300,000, or $225,000. You now owe $81,000 of down payment on a $306,000 contract, plus $3,000 of closing costs, so you bring $84,000. That is the same cash as no credit at all, and you have agreed to pay more for the house. The cap also shrinks to 2% of the lower appraised value.

Appraisers are also told to look for this. Fannie Mae's appraisal rules require comparable sales that included concessions to be adjusted for any price increase the concessions caused. Assume the appraiser will see through a bumped price unless recent sales support it.

When you are the seller: concessions on a flip

On the sale side of a flip, your buyer is usually an owner-occupant, so their loan program sets the limit, not the 2% investment cap. On Fannie Mae loans for a home they will live in, the limit is 3% above 90% loan-to-value, 6% from 75.01% to 90%, and 9% at 75% or less. FHA and VA loans have their own limits, so ask the buyer's lender.

Every dollar of credit comes out of your net proceeds about the same way a price cut does. Illustrative example: a 3% credit on a $400,000 sale is $12,000, which takes about $12,000 off your profit. Put any expected credit into your exit costs from the start, alongside commissions, title, and transfer costs, so a buyer's request does not erase a thin margin.

A credit can keep the headline price higher, but do not count on that to help your next appraisal or your comps. Appraisers are told to adjust comparable sales for concessions, so a $400,000 sale with $12,000 of seller credits may be read as worth less than $400,000.

DSCR, portfolio, and hard money loans

The 2% figure comes from the Fannie Mae and Freddie Mac rules. Loans that are not sold to them, such as most DSCR loans, portfolio loans held by a bank, and hard money loans on flips, follow whatever the lender's own guidelines say. Some follow the agency limits and some do not.

Ask the lender three questions before you negotiate. What is the maximum seller credit as a percent, and of what number? Can it pay points or an interest rate buydown? What happens to my loan amount if the credit is over the limit? Get the answers in writing or on the term sheet.

Common pitfalls

Using the owner-occupant limits on a rental. Writing a 3% or 6% credit into an investment purchase on a conventional loan sets up a re-trade at the end.

Asking for more credit than your closing costs. Fannie Mae counts anything above your actual closing costs as a sales concession. A bigger credit than you can use is not cash back.

Forgetting that the cap is figured on the lower of price or value. A low appraisal cuts both the loan and the credit you are allowed.

Agreeing to credits outside closing. Repairs paid for in cash or side payments that are not on the settlement statement are undisclosed contributions, and Fannie Mae will not buy loans with them.

Comparing only cash to close. A credit and a price cut of the same size have different effects on the loan and the payment. Look at both before you choose.

Run your own numbers

Use the mortgage calculator to compare the loan and payment at the full price and at the reduced price. The rental property calculator and the cash on cash return calculator show what each version does to cash flow and to your return on the cash you put in. If you are selling a flip, the seller net sheet calculator shows what a credit does to your proceeds, and the fix and flip calculator carries it through to profit.

These pages run the math on numbers you enter. They do not set loan terms, and nothing here is a loan offer, legal advice, or financial advice. Concession limits change and vary by lender and loan program, so confirm the current rules with your lender before you sign a contract.

Sources

Fannie Mae Selling Guide, B3-4.1-02, Interested Party Contributions (IPCs) (accessed November 3, 2026), https://selling-guide.fanniemae.com/sel/b3-4.1-02/interested-party-contributions-ipcs. Maximum financing concessions of 2% for an investment property at all CLTV ratios, and 3%, 6%, or 9% for a principal residence or second home, figured on the lower of sales price or appraised value; excess and amounts over closing costs are sales concessions deducted from the price for LTV.

Freddie Mac Single-Family Seller/Servicer Guide, Section 5501.5, Interested party contributions (accessed November 3, 2026), https://guide.freddiemac.com/app/guide/section/5501.5. Investment property financing concessions are limited to 2% of value at every LTV/TLTV ratio; amounts above the limit are sales concessions.

Fannie Mae Selling Guide, B4-1.3-09, Adjustments to Comparable Sales (accessed November 3, 2026), https://selling-guide.fanniemae.com/sel/b4-1.3-09/adjustments-comparable-sales. Comparable sales with sales or financing concessions must be adjusted for any increase in price the concessions caused; positive adjustments are not allowed.

Steps

1. Confirm the loan program's limit

   On a conventional loan sold to Fannie Mae or Freddie Mac, seller-paid financing concessions on an investment property top out at 2%. DSCR, portfolio, and hard money lenders set their own limits, so ask for yours in writing.

2. Work out the dollar cap

   Multiply the limit by the lower of the contract price or the appraised value, not the loan amount. A low appraisal shrinks the cap.

3. Total the closing costs the credit can pay

   Use the lender's Loan Estimate for closing costs and prepaids. The credit cannot be larger than those costs, and it cannot pay the down payment or reserves.

4. Price the credit against a price cut

   Run cash to close, loan amount, and monthly payment both ways. A credit saves more cash now; a price cut leaves a smaller loan and a lower payment.

5. Write it into the contract

   Put the credit amount in the purchase contract or an amendment so it shows on the settlement statement. Credits paid outside closing that are not disclosed can make the loan ineligible.

6. Re-run the deal on the final numbers

   After the appraisal and the final Closing Disclosure, plug the actual price, loan, and cash into your rental or flip numbers before you close.

Questions