What Happens If Your Seller Concessions Exceed Your Cash to Close?

You just negotiated a great deal. The seller agreed to give you $10,000 in concessions to cover closing costs and repairs. Your closing costs are only $7,000.

Question: Do you get the extra $3,000 in cash? Can it go toward your down payment? Does it reduce your loan amount?

This question comes up constantly on r/FirstTimeHomeBuyer, and the confusion is understandable. The answer affects your negotiation strategy, your cash position at closing, and potentially your loan approval.

Let's break down exactly what happens when seller concessions exceed your actual costs.

The Short Answer

You don't get cash back. Seller concessions can only be used to pay for allowable closing costs and prepaid expenses. Any amount that exceeds these costs either:

1. Reduces your loan amount (you borrow less)
2. Increases your down payment (you pay less out of pocket for the down payment)
3. Goes unused (if it exceeds all allowable uses)

The extra money never becomes cash in your pocket.

Now let's dig into the details.

What Are Seller Concessions?

Seller concessions (also called "seller credits" or "seller contributions") are funds the seller agrees to contribute toward the buyer's closing costs and other approved expenses.

Common uses:

• Loan origination fees
• Appraisal fees
• Title insurance
• Escrow/attorney fees
• Prepaid property taxes
• Prepaid homeowners insurance
• HOA transfer fees
• Home warranty
• Interest rate buydown (discount points)
• Repair costs (if agreed upon)

Typical limits:

• Conventional loans: 3-9% of purchase price (depending on down payment)
• FHA loans: 6% of purchase price
• VA loans: 4% of purchase price
• USDA loans: 6% of purchase price

Example: The Math That Confuses Everyone

Let's work through a real scenario:

Purchase price: $400,000
Down payment: 5% ($20,000)
Loan amount: $380,000
Negotiated seller concessions: $10,000
Actual closing costs: $7,000

What happens to the extra $3,000?

Scenario A: Concessions Applied to Closing Costs Only

1. Seller gives $10,000 credit
2. $7,000 goes to pay closing costs
3. You have $3,000 "left over"

Your options for the extra $3,000:

Option 1: Reduce your down payment

• Original down payment needed: $20,000
• Excess concessions applied: $3,000
• New down payment you bring: $17,000

Option 2: Prepay more escrows/prepaids

• Prepay extra months of property taxes: $1,500
• Prepay extra homeowners insurance: $1,000
• Remaining: $500 (goes to reduce loan or down payment)

Option 3: Buy discount points

• Use $3,000 to buy down your interest rate
• Reduces your monthly payment permanently

What you CANNOT do:

• ❌ Get $3,000 in cash at closing
• ❌ Use it to pay off credit cards
• ❌ Use it to buy furniture
• ❌ Keep it in escrow for future repairs

The Three Places Excess Concessions Can Go

1. Reduce Your Cash to Close (Down Payment)

This is the most common outcome and usually the most beneficial for buyers.

The mechanics:

• You needed to bring $27,000 to closing ($20,000 down + $7,000 closing costs)
• Seller gives $10,000 in concessions
• $7,000 pays your closing costs
• $3,000 reduces your required down payment
• You now bring $24,000 instead of $27,000

Why this matters:

• Preserves your cash reserves after closing
• Leaves you with more emergency fund
• Doesn't change your loan amount or monthly payment

Real quote from Reddit: "I negotiated $8,000 in concessions but my closing costs were only $5,000. My lender applied the extra $3,000 to my down payment, so I brought $3,000 less cash to closing. Saved my emergency fund."

2. Increase Prepaid Expenses (Escrows)

If you've already minimized your down payment, excess concessions can prepay future expenses.

Allowable prepayments:

• Property taxes (can prepay up to 12 months)
• Homeowners insurance (can prepay up to 12 months)
• HOA dues (sometimes, check with lender)
• Mortgage interest (prepay first month)

Example:

• Extra concessions: $3,000
• Prepay 6 months of property taxes: $2,000
• Prepay extra homeowners insurance: $1,000
• Result: Lower monthly escrow payments for several months

Is this worth it?

• Pros: Reduces your monthly payment temporarily
• Cons: You would've had to pay these eventually anyway; doesn't save you money long-term

Most buyers prefer: Applying to down payment instead

3. Buy Down Your Interest Rate (Discount Points)

You can use excess concessions to purchase discount points, permanently lowering your interest rate.

The math:

• 1 discount point = 1% of loan amount
• On $380,000 loan, 1 point = $3,800
• Typically reduces rate by 0.25%

Example:

• Original rate: 7.00%
• Extra concessions: $3,000
• Buy ~0.8 points
• New rate: ~6.80%
• Monthly savings: ~$45/month
• Break-even: ~67 months (5.5 years)

When this makes sense:

• You plan to stay in the home 5+ years
• You've already minimized your down payment
• You want lower monthly payments more than cash reserves

4. What If It Exceeds ALL Allowable Uses?

This rarely happens, but if it does:

If seller concessions exceed:

• Your closing costs, AND
• Your ability to reduce down payment further (you're already at minimum), AND
• All allowable prepaid expenses, AND
• The maximum concession limit for your loan type

Then the excess concessions simply go unused.

Example of when this could happen:

• VA loan (0% down, so no down payment to reduce)
• Seller offers $15,000 in concessions
• Closing costs are only $8,000
• You prepay $3,000 in taxes/insurance
• You've used $11,000 of the $15,000
• The remaining $4,000 goes unused (seller keeps it)

This is extremely rare because most buyers have a down payment that can be reduced.

How This Affects Your Negotiation Strategy

Understanding this changes how you should negotiate.

Strategy 1: Ask for the Right Amount

Don't just pick a random number.

Before negotiating, calculate:

1. Your closing costs (from Loan Estimate)
2. Your down payment amount
3. Any repairs you want covered

Then negotiate for exactly what you can use.

Example:

• Closing costs: $7,000
• Repairs needed: $3,000
• Want to reduce down payment by: $5,000
• Ask for: $15,000 in concessions

Strategy 2: Consider Asking for Price Reduction Instead

Sometimes a lower purchase price is better than seller concessions.

Price reduction benefits:

• Lower loan amount
• Lower monthly payment forever
• Lower property taxes (in some states)
• Easier to appraise (no concession limits)

Seller concessions benefits:

• Preserves your cash at closing
• Can be used strategically (rate buydown, prepaids)
• May be more acceptable to seller (they net the same)

When to choose each:

Choose price reduction when:

• You have plenty of cash for closing
• You want to minimize your loan amount
• You're near concession limits for your loan type
• You plan to stay long-term (lower payment matters more)

Choose seller concessions when:

• You're low on cash reserves
• You want to preserve emergency fund
• You're within concession limits
• You want to use credits strategically (rate buydown)

Strategy 3: Use Concessions for Rate Buydown

If you don't need cash relief, buying down your rate can save thousands long-term.

Example negotiation: "We'll accept the list price of $400,000, but we'd like $12,000 in seller concessions to buy down our interest rate and cover closing costs."

Why sellers accept this:

• They get full asking price (looks better for comps)
• Your offer might appraise better
• Their net proceeds are the same as reducing price

Common Misconceptions

Myth 1: "Extra concessions become cash in my pocket"

Reality: They reduce your cash needed at closing or prepay future expenses. You never get cash back.

Myth 2: "I should always ask for maximum concessions"

Reality: Asking for more than you can use is pointless. It makes your offer weaker without benefiting you.

Myth 3: "Concessions don't affect the appraisal"

Reality: High concessions can be a red flag to appraisers. If you ask for 6% in concessions on a $400,000 home ($24,000), the appraiser might question if the property is really worth $400,000.

Myth 4: "I can save unused concessions for repairs after closing"

Reality: Nope. Concessions must be used at closing or not at all. You can't hold them in escrow for future use.

Myth 5: "All loan types allow the same concession amounts"

Reality: Limits vary:

• Conventional (10% down): 6% max
• Conventional (less than 10% down): 3% max
• FHA: 6% max
• VA: 4% max
• USDA: 6% max

Real-World Scenarios

Scenario 1: The Smart Negotiator

Situation:

• $350,000 purchase price
• 5% down = $17,500
• Closing costs = $8,000
• Inspection found $4,000 in needed repairs

Negotiation: "We'll proceed with the purchase at $350,000 if you provide $12,000 in seller concessions."

Outcome:

• $8,000 → closing costs
• $4,000 → reduce down payment (from $17,500 to $13,500)
• Buyer brings $13,500 instead of $25,500
• Saved $12,000 in cash (still have emergency fund)

Scenario 2: The Over-Asker

Situation:

• $300,000 purchase price
• 3% down = $9,000
• Closing costs = $6,000

Negotiation: "We want $20,000 in seller concessions."

Problem:

• Conventional loan with 3% down = max 3% concessions ($9,000)
• Can only use $9,000 legally
• Seller rejects offer as unreasonable

Better approach: "We'd like $9,000 in seller concessions to cover closing costs and reduce our down payment."

Scenario 3: The Strategic Rate Buyer

Situation:

• $400,000 purchase price
• 20% down = $80,000 (buyer has the cash)
• Closing costs = $7,000
• Buyer plans to stay 10+ years

Negotiation: "We'll pay full price with $15,000 in seller concessions."

Outcome:

• $7,000 → closing costs
• $8,000 → buy 2 discount points
• Rate drops from 7.0% to 6.5%
• Saves $125/month = $45,000 over 30 years
• Smart long-term play

How to Calculate Your Ideal Concession Amount

Step 1: Get your Loan Estimate This shows your actual closing costs.

Step 2: Determine your strategy

• Need to preserve cash? Use for down payment reduction.
• Planning long-term stay? Consider rate buydown.
• Have plenty of cash? Maybe just cover closing costs.

Step 3: Do the math

Formula:

Ideal concession amount = 
Closing costs 
+ Down payment reduction desired
+ Rate buydown cost (if applicable)
+ Repair credit (if applicable)

Step 4: Check loan limits Make sure your number doesn't exceed:

• 3-9% for conventional (depending on down payment)
• 6% for FHA
• 4% for VA

Step 5: Negotiate Present the specific number with clear reasoning to your seller.

The Bottom Line

Seller concessions exceeding your closing costs aren't "free money." They're applied to:

1. ✅ Reduce your down payment (most common)
2. ✅ Prepay future expenses (escrows)
3. ✅ Buy down your interest rate (discount points)
4. ❌ NOT cash in your pocket
5. ❌ NOT saved for future repairs

Smart negotiation = asking for exactly what you can use strategically.

Don't ask for $20,000 when you can only use $10,000. And don't leave money on the table by not asking at all.

Make Data-Driven Offers That Include Smart Concession Strategies

Before you negotiate with sellers, understand the property's true value and build a complete offer strategy (including concessions) with offer.guide.

Get Your First Property Analysis Free →

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Related Posts:

• Understanding Earnest Money and Escrow
• How to Make a Strong Offer on a House
• Negotiating After the Home Inspection

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