Homeownership 101

Seller concessions and rate buydowns: one capped pot, and how to spend it

Jeff Updike & Weston Pugh · Dave Perry-Miller Real Estate · Updated October 2026

Closing costs paid, a lower rate for two years, a year of HOA dues covered. Buyers hear three separate gifts. It is one pot of money with a ceiling on it, and the ceiling is set by the buyer’s loan, not by how generous the seller feels.

With rates up again, more sellers are offering to help with a buyer’s costs instead of cutting the price. That help can be worth a lot. It can also be wasted, if it is asked for in the wrong shape or in an amount the loan will not allow. Here is how it works, and the questions to settle before you write an offer.

From the show. This page expands the Homeownership 101 segment of Episode 358 of SOLD with Updike Pugh, published 25 September 2026. The video below starts at that segment.

SOLD with Updike Pugh, Episode 358: Homeownership 101, seller concessions and rate buydowns.

What a seller concession can pay for

Lenders call it an interested party contribution: money from the seller, or anyone else with a stake in the sale, toward the buyer’s costs. Under Fannie Mae’s rules it can cover the buyer’s closing costs, including prepaid items such as taxes and insurance reserves, and a temporary or permanent rate buydown. It can also cover homeowners association assessments for a period after closing, up to 12 months.¹

The catch is that all of it comes out of the same allowance. Paying a year of HOA dues does not open a second bucket. It spends part of the one you have.

It is one number, not several. Decide what problem it is solving before you ask for it.

The cap depends on the loan

Every major loan program caps how much a seller can contribute. For a conventional loan, the cap is a percentage of the lower of the sale price or the appraised value, not of the loan amount, and it depends on how much you put down:¹

Conventional, less than 10% down	Up to 3% (loan-to-value above 90%)
Conventional, 10% to 25% down	Up to 6% (loan-to-value 75.01% to 90%)
Conventional, 25% or more down	Up to 9% (loan-to-value 75% or less)
Conventional, investment property	Up to 2%, whatever the down payment
FHA	Up to 6% of the sale price2
VA	Concessions up to 4% of the home’s reasonable value; the buyer’s normal closing costs paid by the seller do not count toward it3

Those are the program limits. A lender can apply stricter rules of its own, so get the number for your loan from your lender, in writing, before the offer goes out.

Ask for more than the cap, and you do not get the extra

A contribution over the limit is not money you get to keep. Under Fannie Mae’s rules, the excess is treated as a sales concession and subtracted from the price before your loan-to-value is figured, which can change the loan you qualify for.¹ FHA treats contributions over 6 percent as an inducement to purchase.² Either way, the money does not show up as cash in your pocket.

In Texas, the standard resale contract handles this in Paragraph 12. The seller agrees to pay “an amount not to exceed” a dollar figure, applied to the Buyer’s Expenses listed in the contract, and not to brokerage compensation.⁴ If a government loan program bars the buyer from paying certain charges, that money goes to those charges first.⁴ Read plainly, the credit can only be applied to those expenses. The contract does not provide for paying you any unused amount, and lender rules generally do not allow it either. That is one more reason to start from your lender’s real numbers rather than a round figure.

Match the concession to the problem

The same dollars can do very different jobs, so start with what is actually keeping you up at night.

Short on cash at closing

Put the concession toward closing costs and prepaid items. It lowers the check you write at the title company and leaves your savings as a cushion.

Fine on cash, worried about the payment

Put it toward a rate buydown. A permanent buydown pays points to lower the rate for the life of the loan. A temporary buydown, such as a 2-1, lowers the payment for the first years and then steps up to the full rate. Fannie Mae allows temporary buydown periods of up to three years, with the rate rising no more than one percentage point a year, and the money sits in a custodial account that pays the difference each month.⁵

Buying a condo or townhome with dues

Covering HOA assessments for up to a year can help, especially on a home with high dues. Just count it against the same cap.¹

What a 2-1 buydown costs, on a real house

Take the townhome we featured on Episode 358, 3922 Redding Row, listed at $899,000. Say a buyer puts 10 percent down on a conventional loan. That is a loan of $809,100, under Dallas County’s 2026 conforming loan limit, the national baseline of $832,750, and at a 90 percent loan-to-value the seller can contribute up to 6 percent: $53,940.^1,6

Use Freddie Mac’s weekly average 30-year rate of 7.28 percent, from 1 October 2026, as the note rate.⁷ Principal and interest at that rate is about $5,536 a month. A 2-1 buydown would bring it to about $4,483 in the first year, at 5.28 percent, and about $4,998 in the second, at 6.28 percent. Funding that difference costs about $19,097. Add twelve months of the home’s $360 HOA dues, $4,320, and roughly $30,500 of the cap is still available for closing costs.⁸

Put 5 percent down instead and the loan, $854,050, is over the conforming limit, so it becomes a jumbo loan with the lender’s own concession rules. On a conforming loan with less than 10 percent down, the cap would be 3 percent: $26,970 at this price, most of which a 2-1 buydown alone would use. Same house, same seller, a very different conversation.

Illustration only: principal and interest on a 30-year fixed loan, before taxes, insurance and mortgage insurance. Your rate, costs and lender rules will differ. Rates change weekly.

Four mistakes to avoid

1. Treating a buydown as extra buying power

For a temporary buydown, Fannie Mae requires the lender to qualify you at the full note rate, not the reduced first-year rate.⁵ It makes the first years easier. It does not make a bigger house affordable.

2. Assuming unused buydown money comes back to you

If you sell or refinance before a temporary buydown runs out, Fannie Mae’s rule is that the leftover money is credited toward paying off the loan, unless the buydown agreement says it goes back to you or to the lender.⁵ Read that agreement before closing.

3. Forgetting HOA dues come out of the same pot

Ask for a year of dues and a full buydown and you may find there is less room left than you thought.¹

4. Buying down a rate you will not keep

A permanent buydown only pays for itself if you keep the loan long enough to pass the break-even point. If you expect to refinance or sell within a few years, a credit toward closing costs or a temporary buydown may do more. Run the break-even with your lender, and see our guide to how long you should plan to stay in a house.

Quick answers

This page is general information about loan program rules and the standard Texas resale contract. It is not legal, tax or lending advice, and we are not attorneys or lenders. Program limits change and lenders may apply stricter rules; confirm your own limits and costs with your lender. Jeff Updike and Weston Pugh are licensed Texas real estate agents with Dave Perry-Miller Real Estate. Equal Housing Opportunity.