Combining Seller Concessions & Down Payment Assistance: A

Yes, you can combine seller concessions with down payment assistance (DPA). Seller concessions typically cover closing costs (and sometimes a rate buydown), while DPA funds the down payment and, in some programs, closing costs too. The key rule: your loan type sets a hard cap on seller concessions -- up to 6% of the sale price for FHA, stricter limits for USDA and VA, and lender/investor discretion for conventional -- so the two tools' combined total can't exceed what your loan program allows.

How They Work Together

Seller credits and down payment assistance (DPA) can be combined to help buyers afford a home with minimal upfront costs. Typically, sellers offer concessions in the form of closing cost assistance, while DPA programs provide funds for the down payment and closing costs. However, there are limits to how much concession a seller can provide depending on the loan type.

Loan Type Limits

Each loan type has different guidelines regarding concessions and DPA. FHA loans usually allow up to 6% of the home's sale price in concessions, while USDA and VA loans have stricter limits. Conventional loans may allow more flexibility but are subject to investor and lender guidelines. It is essential to check with your lender or agency for specific rules.

No Cash Back Scenario

In some cases, buyers may receive their DPA funds without any cash back from the seller. For example, a buyer using an FHA loan could receive $30,000 in DPA and have the seller provide up to 6% of the home's sale price in concessions (e.g., $18,000 on a $300,000 home). If the total assistance exceeds the home's closing costs, any excess could be moved to rate buydown or prepaids instead of cash back.

DPA Rules

DPA rules vary by agency and local provider. It is crucial to review the guidelines for each program you are considering to ensure eligibility and understand what expenses they cover. Some programs may have income, credit score, or property location requirements.

Appraisal Risk

Combining concessions with DPA can increase appraisal risk because the home's value might be higher than its actual worth if the seller provides excessive concessions to help buyers afford it. To mitigate this risk, lenders may require a second appraisal or an appraisal from a different appraiser.

Example

Consider a buyer using a conventional loan who needs a $150,000 mortgage, a $15,000 down payment, and $6,000 in closing costs. If the seller offers a $3,000 concession, the buyer could use DPA to cover the remaining down payment and closing cost needs. However, if the seller provides more than 3% of the home's sale price in concessions, the lender may need to reassess the home's value.

Next Steps

Ask your lender to run the combined numbers -- your DPA amount, the seller concession limit for your loan type, and your closing costs -- before you write an offer, so you know exactly how much concession to request and whether any excess needs to go toward a rate buydown instead of being wasted.

Ask a lender to run your combined numbers