Conventional seller concessions for investment property are tighter than the rules most buyers hear about for a home they will live in. On a standard Fannie Mae conventional loan, an interested party can contribute no more than 2% toward closing costs. The percentage uses the lower of the sales price or the appraised value. That credit cannot fund the down payment, required reserves, or cash back to the buyer. If the agreed credit is larger than the cap, or larger than the costs it can pay, the extra is not a bonus. It is a sales concession. That extra can reduce the value used to size the loan.
Ask Josh to review the concession on your investment offer
What do conventional seller concessions for investment property allow?
Fannie Mae calls these payments interested party contributions. A financing concession pays the borrower’s closing costs, including prepaid items. It can also cover association assessments for no more than 12 months after settlement. The cap uses the lower of the sales price or the appraised value. It is not a percentage of the loan amount.
Selling Guide section B3-4.1-02 sets one flat cap for an investment property. A home the borrower will occupy uses a sliding cap instead.
Fannie Mae maximum financing concessions.
| Occupancy. | Loan-to-value. | Maximum financing concession. |
|---|---|---|
| Principal residence or second home. | Greater than 90%. | 3% of the lower of price or value. |
| Principal residence or second home. | 75.01% to 90%. | 6% of the lower of price or value. |
| Principal residence or second home. | 75% or less. | 9% of the lower of price or value. |
| Investment property. | All combined loan-to-value ratios. | 2% of the lower of price or value. |
That table is published in Fannie Mae’s interested party contributions guide. Freddie Mac uses the same conventional framework in Guide section 5501.6. The loan you are offered can still carry an investor overlay that is stricter than either guide. Confirm the cap on the actual program before you write it into an offer.
A second home is not an investment property for this table. A second home has to meet occupancy rules, and it can use the higher occupied-home percentages. Calling a rental a second home to reach a 6% or 9% credit is a misrepresentation, not a planning trick. If the plan is to rent the home, underwrite it as an investment property from the first conversation.
How do you calculate the usable credit?
The usable credit is the smallest of three numbers. Those are the program cap, the dollar amount in the contract, and the eligible costs the credit may pay. Work the math in that order. A round percentage should not become a cash figure you cannot use.
- Write down the contract price and the value you expect the appraisal to support. Use the lower of the two.
- Multiply that lower figure by 2% for a conventional investment property. That product is the planning cap, not a promise of funds.
- List only the costs the lender says the credit may pay. Stop when the list reaches the cap.
- Keep the down payment and any required reserves on a separate line. The concession does not reduce either one.
- If the contract credit is higher than the cap or higher than eligible costs, cut the usable amount. Do not carry the extra forward as cash.
Take a purchase price of $350,000 that appraises at $340,000. The lower figure is $340,000, and 2% of that is $6,800. A contract credit of $10,000 is already $3,200 over that cap. If the eligible costs are smaller than the cap, the usable credit falls to that smaller cost total. The buyer still brings the down payment. On a conventional investment purchase, that down payment is commonly well above the 3% first-home figure people quote for a primary residence. The credit does not close that gap.
Fees a seller customarily pays in the local market are not counted against the Fannie Mae cap. A credit that is really the seller paying the seller’s own normal costs is different from a credit that pays the buyer’s costs. The settlement statement has to show which is which.
What can the credit pay, and what happens to the extra?
On a conventional loan, a financing concession may go toward borrower closing costs and prepaids. It may also cover a limited period of association dues. Discount points count when an interested party pays them. So does a temporary or permanent rate buydown. Fannie Mae counts the cost of that buydown toward the cap. A lower rate funded by the seller can use up the same 2% you hoped to spend on title fees and prepaids.
The credit cannot be used for the down payment, for financial reserves, or for the minimum amount the borrower must contribute. It also cannot come back to the buyer as unrestricted cash. If closing costs are smaller than the negotiated credit, the unused portion has to be reduced or treated as a sales concession. It does not become a check at the table.
Sales concessions are the other bucket. Fannie Mae puts cash gifts, furniture, cars, decorator allowances, and moving costs in that bucket. Any financing concession above the maximum goes there too. Those amounts are deducted from the sales price. The loan-to-value ratio is then recalculated on the lower of the reduced price or the appraised value. A buyer who raises the price to create room for a large credit can end up worse off. The result can be a smaller loan, more cash due, or an appraisal problem.
The live guide to what seller concessions can pay on a conventional loan walks through eligible costs for a conventional purchase in general. This page stays on the investment-property cap and the math that decides how much of an agreed credit you can keep.
Who counts as an interested party?
The seller is the obvious source, and the seller is not the only one. Fannie Mae also counts the builder or developer. The real estate agent or broker counts too, along with an affiliate of those parties. So does anyone who benefits from a higher sales price and can influence the deal. Money that runs through a nonprofit or another third party is still a contribution if it started with one of those parties.
A lender or an employer is not an interested party just because they are in the transaction. They become one if they are the seller, or if they are affiliated with the seller or another interested party. A lender credit from premium pricing is excluded from the cap, even when the lender has another role. A gift or gift of equity from a relative who is also the seller can be excluded. That relative must be an acceptable donor, must not be a builder or other interested party, and must meet the gift rules. Those exceptions are narrow. Do not assume a family sale or a builder incentive falls outside the 2%.
Undisclosed contributions make the mortgage ineligible for sale to Fannie Mae. Moving expenses paid on the side, fees paid off the settlement statement, and a silent second held by the seller are examples. Payment abatements, where someone else covers the borrower’s payments, are not eligible at all. Association dues are not an abatement if they cover 12 months or less. Beyond 12 months, they are.
What changes when the appraisal comes in low?
The cap uses the lower of price or appraised value. A low appraisal shrinks the credit and can shrink the loan at the same time. On a $400,000 contract with a $375,000 appraisal, 2% of the lower figure is $7,500. That is not the $8,000 someone would get from the contract price. If the contract promised $9,000, the file is over the cap before anyone argues about which fees qualify.
The value gap is a separate problem. The concession does not fill the difference between price and appraisal. The buyer may renegotiate the price, bring more cash, reduce the credit, or walk away if the contract allows it. Any of those changes should go back through the lender before you treat the approval as intact. The appraiser also has to see the financing concessions and other contributions tied to the sale. Those terms are part of the value question, not a side note.
Run a second version of the worksheet with no seller credit and a third with the appraisal 5% under the price. If the purchase only works in the optimistic version, the credit is doing too much of the work.
How should the credit appear in the Texas contract?
Put the dollar amount or percentage in the purchase contract or an addendum. Say it is a credit toward the buyer’s allowable closing costs and prepaids, subject to the loan program and lender approval. A verbal promise or a side letter will not hold. A credit added after underwriting, without notice, is how files lose a week at the closing table.
Texas investors often negotiate this on a TREC contract through the seller’s contribution to the buyer’s expenses. The form language still has to match what the lender can allow. A repair the seller will complete, a price cut, and a closing-cost credit are three different structures. A repair can raise a property-condition question. A price cut changes the loan amount and the payment. A credit only helps to the extent you have eligible costs under the 2% cap. Tell the lender about all three, including personal property the seller is leaving behind.
If the credit is added or increased after the offer is accepted, send the amendment to the lender and the title company before you rely on the new cash-to-close number. The change can affect the appraisal, the approval, and the closing date.
How does the credit change the cash an investor still brings?
Separate the cash into three piles: down payment, closing costs the credit does not cover, and reserves the lender wants left after closing. Only the middle pile can shrink because of a seller concession, and only up to the cap.
Using the earlier $340,000 lower-of figure, a buyer putting 20% down still needs $68,000 for the down payment if the loan is based on that value. A $5,400 usable credit might cover part of the closing costs. It does not turn an $68,000 down payment into $62,600. Reserves, when the loan requires them, stay in the account after closing. They are not a fee the seller can pay.
That is why a seller credit and a price reduction are not interchangeable. A lower price can reduce the loan amount, the down payment, and the payment. A credit can only retire eligible costs, and on an investment property those costs often run out before a large credit does. Compare both structures on a lender worksheet, not on a rule of thumb that a dollar of credit equals a dollar of price.
For the broader Texas cost picture, use the conventional loan closing costs guide. It covers what buyers budget for in this market. It does not replace the investment-property percentage.
When should you compare a conventional loan with another option?
A conventional investment loan fits an investor who can document income, assets, credit, and reserves. It is built for long-term financing on a standard one-to-four unit rental. The 2% concession cap is part of that product. It is not, by itself, a reason to switch programs. It is also not a reason to force a rental into an owner-occupied loan.
A DSCR loan qualifies from the property’s rental income rather than the borrower’s personal income. The down payment is often in a 20% to 30% range. The concession rules are whatever that investor’s guidelines say, not the Fannie Mae table above. A bank statement loan is a different path. It is aimed at self-employed borrowers who qualify from deposits rather than tax returns. A short hold or a renovation may belong on a bridge loan or a fix-and-flip loan instead of a 30-year conventional mortgage. None of those products inherit the 2% figure automatically.
Start the comparison from the property plan. A long-term rental with clean income documentation is a conventional conversation. The conventional purchase loan page shows how that program is structured. A property that will be renovated and sold needs a different file. So does a borrower who cannot document income the conventional way. Bring the proposed credit language either way so the cap is checked against the program you actually use.
What mistakes make the credit unusable?
- Underwriting a rental as a primary residence or second home to reach a higher percentage.
- Treating 2% of the contract price as cash you will receive, before the appraisal and the cost list.
- Using the credit in the offer to cover the down payment or reserves.
- Raising the price so the seller can “give back” more than the cap allows.
- Leaving a repair credit, a buydown, or personal property out of the disclosure to the lender.
- Adding the credit in an amendment and not sending it back through underwriting.
- Copying a limit from an older article or from an FHA, VA, or USDA example.
FHA seller concessions follow a different rule and are aimed at primary residences. They do not raise the conventional investment-property cap. Some charts show 3%, 6%, or 9% next to a rental. Ask which occupancy and which agency that chart is using before you put the number in a contract.
What should you ask before you sign?
A short list keeps the concession from becoming a closing surprise. Ask the lender these questions with the contract language in front of you:
- Is this file an investment property, and which conventional program is it?
- Is the cap 2% of the lower of price or appraised value on this loan, or does an overlay set a lower number?
- Which fees and prepaids on the Loan Estimate can the credit pay, and does a buydown count against the same cap?
- What cash is still due for the down payment, uncovered costs, and reserves if the credit is approved in full?
- What changes if the appraisal is below the contract price?
- How will a repair, a price cut, or personal property be treated if the seller offers one of those instead?
Get the answers in a revised estimate, not only in a phone note. Update the worksheet when the appraisal or an amendment arrives.
Frequently asked questions
Can a seller concession cover the down payment on an investment property?
No. Fannie Mae does not allow interested party contributions to cover the borrower’s down payment, reserves, or minimum contribution. The buyer brings those funds from an acceptable source. The seller credit, if it qualifies, pays allowable closing costs and prepaids only.
What if my closing costs are less than the credit in the contract?
The extra generally cannot be paid to you as cash. The credit has to be reduced. Anything above your eligible costs is a sales concession, and it comes off the price used for the loan-to-value ratio. Ask the lender to show the reduced figure before you assume the full contract credit will survive.
Does a bigger down payment raise the 2% investment property cap?
Not on the standard Fannie Mae investment-property row. Occupied homes move from 3% to 6% to 9% as the loan-to-value falls. Investment property stays at 2% at every combined loan-to-value. Putting more money down can still help pricing, mortgage insurance, and reserves. It does not, by itself, unlock a larger seller credit.
Can I add a seller credit after the offer is accepted?
Only if the change is written into the contract and reviewed by the lender and the title company. A late credit can affect the appraisal, the approval, and the cash due at closing. Do not treat an email agreement as approved until it is on the settlement figures the lender will use.
Is 2% the rule on every investment loan?
It is the Fannie Mae financing-concession maximum for an investment property, calculated on the lower of price or value. Another investor, a portfolio loan, or a non-QM product such as a DSCR loan can set a different limit. Lender overlays can also be tighter. The approval on your file controls, not a general chart.
Get the cap checked against your offer
Bring the purchase price, the proposed seller-credit language, and how you plan to use the property. Josh can tell you whether the credit fits a conventional investment loan. He can also show what cash you should still plan to bring, and whether another program fits the property better. The review does not promise an approval. The numbers can change when the appraisal and the final fees are in.
Josh Moody Loans is an Equal Housing Lender. NMLS #134871. This is not a commitment to lend. Programs, limits, and pricing change, and not every borrower or property will qualify.