Seller Concessions for FHA, VA, USDA and Conventional Loans in Kentucky

Updated for 2026 Kentucky homebuyers

Seller concessions can be one of the most powerful tools a Kentucky homebuyer can use to reduce the amount of money needed at closing. Whether you are buying a home with an FHA loan, VA loan, USDA Rural Housing loan, Kentucky Housing Corporation loan, or a conventional mortgage, seller-paid closing costs may help cover expenses that would otherwise come out of your pocket.

In plain English, a seller concession is money the seller, builder, or another interested party agrees to pay toward the buyer’s allowable closing costs, prepaid items, discount points, or other lender-approved costs. The key is this: each mortgage program has different limits and rules.

What Are Seller Concessions?

Seller concessions, also called seller-paid closing costs or interested party contributions, are credits paid by the seller, builder, real estate agent, or another interested party to help cover costs normally paid by the buyer.

These credits may help pay for items such as:

• Lender fees
• Title company fees
• Recording fees
• Transfer-related charges where allowed
• Prepaid property taxes
• Homeowners insurance
• Escrow setup
• Discount points to lower the interest rate
• Temporary or permanent rate buydowns where allowed
• Other closing costs permitted by the loan program and lender

Seller concessions cannot usually be used to give the buyer cash back at closing, and they generally cannot be used to meet the buyer’s required down payment.

Seller Concession Limits by Loan Program

Loan Program	Maximum Seller / Builder Contribution	Common Uses	Important Rule
FHA Loan	Up to 6% of the sales price	Closing costs, prepaids, escrow setup, discount points, and other allowable costs	Cannot be used for the buyer’s required FHA down payment
VA Loan	VA does not limit credits for normal closing costs, but seller concessions are limited to 4% of the home’s reasonable value	Closing costs, prepaids, discount points, funding fee where allowed, and other allowable concessions	VA has a different structure than FHA, USDA, and conventional loans
USDA Rural Housing Loan	Up to 6% of the sales price	Closing costs, prepaid items, escrow setup, and other eligible loan costs	USDA is already a zero-down loan, so the seller credit is mainly used for closing costs and prepaids
Conventional Loan – Fannie Mae	3%, 6%, or 9% depending on occupancy and loan-to-value	Closing costs, prepaids, discount points, and other allowable costs	The lower the down payment, the lower the allowed seller contribution
KHC Loan with FHA, VA, USDA, or Conventional First Mortgage	Follows the underlying first mortgage program	Can often be layered with KHC down payment assistance when eligible	KHC is not a separate seller concession limit; it works with the first mortgage program rules

FHA Seller Concessions in Kentucky

FHA loans allow seller concessions up to 6% of the sales price. This can be a major benefit for Kentucky first-time homebuyers because FHA already allows a low 3.5% minimum down payment for eligible borrowers.

For example, on a $250,000 FHA purchase, the seller could potentially pay up to $15,000 toward allowable buyer costs. That does not mean the buyer automatically gets the full amount. The final credit must be supported by actual allowable closing costs, prepaid items, discount points, and lender-approved charges.

FHA seller concessions may help cover:

• Loan origination fees
• Title and settlement fees
• Recording fees
• Prepaid taxes and insurance
• Escrow reserves
• Discount points
• Other FHA-allowable borrower costs

FHA seller concessions cannot be used to pay the buyer’s minimum required 3.5% down payment. The down payment must come from the borrower’s own funds, approved gift funds, approved assistance, or another acceptable source.

Related Kentucky FHA resource: How to Qualify for a Kentucky FHA Loan

Official FHA source: HUD FHA interested party contribution guidance

VA Seller Concessions in Kentucky

VA loans are different from most other mortgage programs. VA allows sellers and builders to pay credits toward some or all of the buyer’s loan closing costs. However, VA seller concessions are limited to no more than 4% of the home’s reasonable value.

This is where VA loans are often misunderstood. Normal closing costs and seller concessions are not always treated the same way under VA guidelines. The seller may be able to pay allowable closing costs, but certain extra concessions are limited to 4%.

VA seller concessions may include items such as:

• Payment of the VA funding fee where allowed
• Prepaid taxes and insurance
• Temporary buydown costs
• Payoff of buyer debts where allowed
• Other allowable concessions approved by the lender and VA guidelines

VA loans can be a strong option for eligible Kentucky veterans, active-duty service members, reservists, and surviving spouses because they may offer zero down payment and no monthly mortgage insurance.

Official VA source: VA funding fee and loan closing costs

USDA Seller Concessions in Kentucky

USDA Rural Housing loans allow seller contributions up to 6% of the sales price for eligible loan purposes. This can be very helpful because USDA loans are already designed as a zero-down mortgage option for eligible rural and suburban areas.

In Kentucky, many areas outside major metro cores may qualify for USDA financing. USDA seller concessions are commonly used to reduce or eliminate the buyer’s closing costs and prepaid expenses.

USDA seller concessions may help pay for:

• Closing costs
• Prepaid taxes
• Homeowners insurance
• Escrow setup
• Discount points
• Other eligible loan costs

Even though USDA allows zero down payment, the buyer still has to qualify based on credit, income, debt-to-income ratio, property eligibility, and household income limits.

Related Kentucky USDA resource: Kentucky USDA Loan Articles

Official USDA source: USDA Guaranteed Loan Program Handbook – Chapter 6

Conventional Loan Seller Concessions in Kentucky

Conventional mortgage loans backed by Fannie Mae use a tiered seller concession structure. The seller concession limit depends on occupancy type and the loan-to-value ratio.

Conventional Loan Scenario	Maximum Interested Party Contribution
Primary residence or second home with LTV greater than 90%	3% of the sales price
Primary residence or second home with LTV from 75.01% to 90%	6% of the sales price
Primary residence or second home with LTV of 75% or less	9% of the sales price
Investment property	2% of the sales price

For many Kentucky first-time homebuyers using a conventional 3% down loan, the seller concession limit is typically 3% because the loan-to-value is usually above 90%.

For example, on a $250,000 conventional loan with 3% down, the seller credit may be limited to $7,500. That can still help significantly with closing costs and prepaid expenses, but it is not the same as FHA’s 6% concession limit.

Official Fannie Mae source: Fannie Mae Interested Party Contributions

How KHC Down Payment Assistance Works with Seller Concessions

Kentucky Housing Corporation, commonly called KHC, offers down payment assistance for eligible Kentucky buyers using a KHC first mortgage. KHC’s Regular Down Payment Assistance Program may provide assistance in the form of a second mortgage up to $12,500, subject to KHC guidelines, income limits, purchase price limits, and program availability.

KHC assistance is not the same thing as a seller concession. KHC assistance may help with down payment and closing costs, while seller concessions come from the seller, builder, or other interested party. In some cases, a Kentucky buyer may be able to combine KHC assistance with seller-paid closing costs, depending on the loan program, underwriting approval, and total allowable contributions.

This can be a strong strategy for buyers who have enough income to qualify but need help reducing cash to close.

Related KHC resource: Kentucky Housing Corporation KHC Loan Programs

Official KHC source: Kentucky Housing Corporation Down Payment Assistance

Can Seller Concessions Be Used for the Down Payment?

In most cases, no. Seller concessions generally cannot be used to meet the buyer’s required minimum down payment.

For example, if a Kentucky buyer is using an FHA loan, the buyer still needs the required FHA down payment from an acceptable source. The seller credit can help with closing costs, prepaid expenses, and other allowable charges, but it generally cannot replace the buyer’s minimum investment.

Acceptable down payment sources may include:

• Borrower’s own funds
• Approved gift funds
• Approved down payment assistance
• Employer assistance where allowed
• Other program-approved sources

Seller Concessions vs. Price Reduction

A seller concession is not the same thing as a price reduction. A price reduction lowers the purchase price. A seller concession keeps the price higher but gives the buyer a credit toward allowable costs.

For many Kentucky buyers, seller concessions can be more useful than a small price reduction because concessions can reduce the cash needed at closing.

Example:

• A $5,000 price reduction may only lower the monthly payment by a modest amount.
• A $5,000 seller credit may reduce the buyer’s cash to close by up to $5,000 if there are enough allowable costs.

The right strategy depends on the buyer’s funds, appraisal value, loan program, seller motivation, and monthly payment goal.

Using Seller Concessions for an Interest Rate Buydown

Seller concessions may also be used to pay discount points or fund a rate buydown when permitted by the loan program and lender. This can help lower the buyer’s monthly payment.

There are two common types of buydowns:

• Permanent rate buydown: Discount points are paid at closing to lower the interest rate for the life of the loan.
• Temporary buydown: The payment is reduced temporarily for the first one, two, or three years, depending on the structure.

A rate buydown can be useful, but it needs to be analyzed carefully. Sometimes the better move is to use the seller credit for closing costs and prepaid expenses first. Once those costs are covered, remaining allowable seller credit may be considered for discount points or a buydown.

Kentucky Buyer Example

Assume a Kentucky homebuyer is purchasing a $250,000 home using FHA financing.

• Purchase price: $250,000
• FHA minimum down payment at 3.5%: $8,750
• Maximum FHA seller concession at 6%: $15,000
• Estimated closing costs and prepaids: $6,500

In this example, the seller credit could potentially cover the estimated $6,500 in closing costs and prepaid items, assuming the contract, lender, and FHA guidelines allow it. If there is remaining allowable credit, the buyer may be able to use part of it toward discount points or a rate buydown.

However, the buyer still needs an acceptable source for the FHA down payment unless using approved assistance or gift funds.

Suggested Contract Language for Seller-Paid Closing Costs

Buyers should work with their real estate agent and lender before writing the offer. A common way to structure the language is:

Seller to pay $________ toward buyer’s closing costs, prepaid expenses, discount points, and other financing concessions allowed by buyer’s lender and loan program.

The exact language should be reviewed by the real estate agent, lender, and any applicable parties involved in the transaction. The seller credit should be written clearly in the purchase contract so the lender and title company can apply it correctly.

Builder Concessions and New Construction Incentives

Builder concessions work much like seller concessions. A builder may offer closing cost assistance, rate buydown funds, design center credits, appliance packages, or other incentives.

The important point is that builder incentives are still reviewed under mortgage program rules. If the builder is considered an interested party, the value of the incentive may count toward the applicable contribution limit.

Before accepting a builder incentive, Kentucky buyers should ask:

• Does the incentive count toward my seller concession limit?
• Can it be used with my loan program?
• Do I have to use the builder’s preferred lender?
• Is the builder credit being used for closing costs, a rate buydown, or something else?
• Does the appraisal support the final sales price?

Common Mistakes Buyers Make with Seller Concessions

• Asking for more seller credit than the loan program allows
• Assuming seller concessions can pay the down payment
• Not estimating closing costs before writing the offer
• Forgetting that unused seller credit usually cannot be received as cash back
• Not checking whether a rate buydown is worth the cost
• Failing to confirm if the appraisal supports the higher sales price
• Assuming builder incentives are automatically free money

How to Structure a Strong Offer with Seller Concessions

The best strategy is to work backward from the seller’s net number and the buyer’s cash-to-close goal.

For example, if a seller wants to net a certain amount, a buyer may offer a price that includes seller-paid closing costs, as long as the appraisal supports the sales price and the loan program allows the seller credit.

This is why pre-approval matters before writing an offer. The lender needs to estimate:

• Down payment requirement
• Closing costs
• Prepaid taxes and insurance
• Escrow setup
• Seller concession limit
• Potential rate buydown options
• Estimated cash to close
• Estimated monthly payment

Related first-time buyer resource: Kentucky First-Time Home Buyer Mortgage Programs 2026

Frequently Asked Questions About Seller Concessions

How much can a seller pay toward FHA closing costs?

FHA allows seller concessions up to 6% of the sales price for allowable costs. These may include closing costs, prepaid items, escrow setup, and discount points, but they generally cannot be used for the buyer’s required down payment.

How much can a seller pay on a VA loan?

VA allows sellers and builders to offer credits for some or all of the buyer’s loan closing costs. VA seller concessions are limited to no more than 4% of the home’s reasonable value.

How much can a seller pay on a USDA loan?

USDA allows seller contributions up to 6% of the sales price for eligible loan purposes, including many closing costs and prepaid items.

How much can a seller pay on a conventional loan?

For Fannie Mae conventional loans, seller concession limits are generally 3%, 6%, or 9% depending on loan-to-value and occupancy. For many 3% down conventional first-time buyer loans, the limit is commonly 3% of the sales price.

Can seller concessions be used for the down payment?

Usually no. Seller concessions generally cannot be used to meet the buyer’s minimum required down payment. The down payment must come from an acceptable source such as borrower funds, approved gift funds, or eligible down payment assistance.

Can seller concessions be used to buy down the interest rate?

Yes, seller concessions may often be used for discount points or rate buydowns when allowed by the loan program and lender. The buyer should compare the cost of the buydown against the monthly payment savings.

Can KHC down payment assistance be combined with seller-paid closing costs?

In some cases, yes. KHC down payment assistance may be combined with seller-paid closing costs when the buyer, property, loan program, and total contribution structure meet applicable guidelines.

What happens if the seller credit is higher than the buyer’s closing costs?

Unused seller credit usually cannot be given to the buyer as cash back. The buyer may need to reduce the seller credit, use it for other allowable costs, or consider discount points or a rate buydown if permitted.

About Joel Lobb

Joel Lobb is a Kentucky mortgage loan officer helping homebuyers compare FHA, VA, USDA Rural Housing, Kentucky Housing Corporation, and conventional mortgage options. Joel has more than 20 years of experience helping Kentucky families with mortgage pre-approvals, first-time homebuyer programs, down payment assistance, and refinance options.

Joel Lobb | NMLS #57916
EVO Mortgage | Company NMLS #1738461
Call/Text: 502-905-3708
Email: kentuckyloan@gmail.com
Website: www.mylouisvillekentuckymortgage.com

Equal Housing Lender. This is not a commitment to lend. All loans are subject to credit approval, property approval, income verification, underwriting approval, and program guidelines. Guidelines, rates, fees, and program availability may change without notice. Not affiliated with FHA, VA, USDA, HUD, Kentucky Housing Corporation, or any government agency. Visit www.nmlsconsumeraccess.org for licensing information.