What the cap is, and why it exists
When a seller agrees to put money toward your side of the closing, your lender does not see a kindness. It sees an interested party contribution - money toward the buyer's costs from the seller, an agent, a builder, a developer, the lender, a third-party originator, or anyone else with an interest in the sale closing. Every major loan program caps that money as a percentage of price or value, and the cap is why most post-inspection credit requests come back smaller than they went in.
The logic is straightforward once you see it. A buyer handed money at closing by the party selling them the house has effectively paid less for it, and the loan was sized against the higher figure. Left uncapped, the practice would quietly inflate every sale price in the data the next appraisal is built from. So the agencies cap it - and an over-cap contribution is not rejected but re-characterized, which is worse for you than a refusal.
One note before the numbers: nobody in your transaction can negotiate a cap. The only questions worth asking are which program you are on and which band you sit in.
Conventional: the 3 / 6 / 9 ladder, and 2 percent on investment property
Conventional financing is the only program where the ceiling moves with your down payment, and it moves a long way. Fannie Mae's Selling Guide, section B3-4.1-02, published in its current form in May 2025, sets the maximum by occupancy and by loan-to-value or combined loan-to-value ratio:
- Principal residence or second home, ratio above 90%: 3%
- Principal residence or second home, ratio of 75.01% to 90%: 6%
- Principal residence or second home, ratio of 75% or less: 9%
- Investment property, every ratio: 2%
The percentage is applied to the sales price or appraised value, whichever is lower - which matters if your appraisal comes in under the contract figure, because the ceiling drops with it. Confirm the base with your lender rather than assuming the price.
Two things follow. The low-down-payment buyer, who needs the money most, has the least room: 3%, absorbing every contribution the seller makes and not only the inspection money. The buyer putting a quarter down has 9% and will never meet the ceiling. Identical request, identical seller, identical house, different answers from underwriting - and negotiating skill explains none of it.
Freddie Mac's Single-Family Seller/Servicer Guide carries the same ladder and the same 2% on investment property, so "both conventional investors use the same limits" is fair - with one qualification. The Freddie Mac guide sits behind authentication and could not be read at its own source for this reference; two independent reproductions agree with each other and with the verified Fannie Mae table. Treat Fannie Mae as primary and Freddie Mac as corroboration.
FHA: a flat 6 percent, the carve-outs, and the down-payment rule
FHA does not use a ladder. The Single Family Housing Policy Handbook 4000.1 states that "Interested Parties may contribute up to 6 percent of the sales price toward the Borrower's origination fees, other closing costs, prepaid items and discount points." Six percent, of the sales price, at every loan-to-value ratio. An FHA buyer putting the minimum down has twice the room of a conventional buyer in the same position - one of the few places FHA is more flexible.
The 6% is not only for closing costs. The handbook folds in interest-rate buydowns permanent and temporary, mortgage interest payments on fixed-rate loans, mortgage payment protection insurance, and the upfront mortgage insurance premium. Anything in those categories eats the same 6%.
Then the rule that disappoints more FHA buyers than any other: "Interested Party Contributions may not be used for the Borrower's MRI." The MRI is the minimum required investment - the 3.5% the borrower must put in from their own funds. A credit covers origination fees, other closing costs, prepaid items and points. It cannot cover your down payment, however much room is left under the 6%. Only a price reduction helps, by lowering the required investment proportionally.
Two exclusions run the other way, in your favor. Commissions are not a contribution: the handbook says "Payment of real estate agent commissions or fees, typically paid by the seller under local or state law, or local custom, is not considered an Interested Party Contribution," and treats an owner's satisfaction of a PACE lien the same way, so a seller paying a buyer-side commission costs you no room. Premium pricing credits from the lender are not a contribution either - "provided the Mortgagee or TPO is not the seller, real estate agent, builder, or developer" - the mechanism behind a lender credit, which keeps it outside the 6%.
These carve-outs are the subject of active cross-agency rulemaking, and HUD's online section-level handbook can carry effective dates differing from the consolidated PDF, which itself instructs readers to check online. Have your lender confirm any precise FHA figure.
VA: 4 percent, and a two-part rule readers consistently miss
The VA limit is 4%, and the structure around it is more generous than the number suggests. The VA's page on funding fee and closing costs, updated in October 2026, puts it this way: "We allow home sellers or builders to offer credits to cover some or all of the buyer's closing costs. We don't limit credits for a loan's closing costs, but we do limit seller's concessions to no more than 4% of your home's reasonable value."
Read that twice. Paying a VA buyer's ordinary closing costs is not a concession at all and is not capped. The 4% applies only to what the VA defines as a concession: "anything of value added to the transaction at no additional cost to the buyer," with credits for the VA funding fee, debt payoff and prepaid hazard insurance given as examples. A seller covering closing costs and a seller paying off the buyer's car loan are doing different things, and only one counts. The base matters too: the 4% is measured against the property's reasonable value, the figure on the VA Notice of Value, not necessarily the sales price.
Two VA documents state the base differently. The VA Home Loan Guaranty Buyer's Guide, in its April 2022 version, says concessions "can be up to 4% of the loan amount" and elsewhere "4% of the sale." The current VA.gov page says 4% of reasonable value. VA.gov is primary and current and the one to work from; the Buyer's Guide is an older consumer-facing restatement. Anyone quoting you 4% of the loan amount is quoting the superseded version.
The operative lender-facing source, with the itemized list of what qualifies, is Chapter 8 of VA Pamphlet 26-7, the Lender's Handbook. It could not be retrieved for this reference, so nothing beyond the three VA.gov examples is itemized here. If the composition of the 4% matters, that is the document to ask your lender for.
USDA: 6 percent, by regulation, with a change pending
USDA has the strongest source class of the four: its limit sits in the Code of Federal Regulations rather than a guide. 7 CFR 3555.102(h) excludes from eligible loan purposes "Purchasing a home if the seller, or other interested third party, contributes more than 6 percent, unless otherwise provided by the Agency, of the property's sales price toward the purchaser's mortgage financing costs, closing costs, escrow accounts, furniture or other giveaways."
Notice the drafting: a prohibition on the guarantee rather than a permission. USDA's handbook HB-1-3555 restates it at paragraph 6.2.C and adds that concessions cannot fund personal debt or movable property, and that seller concessions for repairs must be held in escrow.
One change is pending, and it is the number on this page most likely to move. In April 2026 the Rural Housing Service published a proposed rule amending 7 CFR 3555.102(h) to state that "Real estate commission fees are excluded from the 6 percent seller concession limitation," aligning USDA with FHA, VA and the conventional investors after the national commission-practice settlements. The comment period closed in June 2026. It is a proposed rule, not confirmed as final as of this writing, so the accurate statement today is that USDA has proposed excluding commissions, not that it does.
Why an over-cap credit is worse than a refused one
Buyers assume asking for too much produces a smaller credit. It does not. It produces a different instrument, aimed at you.
Fannie Mae splits these contributions in two. Financing concessions are contributions toward the borrower's closing costs, plus HOA assessments limited to twelve months after settlement. Sales concessions cover non-realty items - cash gifts, rebates, personal property - and any financing concession above the limit. Sales concessions, the guide says, "must be deducted from the property's sales price for LTV/CLTV calculations."
Follow what that does. Your loan was sized against the original price. Deducting the excess from that price for ratio purposes lowers the denominator while the loan stays put, so your loan-to-value ratio rises - possibly into worse pricing, possibly into mortgage insurance you had avoided, possibly out of approval. A negotiated reduction lowers price and loan together and the lender is content. A reclassified credit lowers only the basis, in underwriting, with days left.
FHA reaches the same place by another route. Contributions above 6%, and contributions exceeding your actual origination fees, closing costs, prepaid items and points, are treated as an inducement to purchase, producing what the handbook calls a dollar-for-dollar reduction to the sales price before the ratio is applied.
That second FHA trigger is the quiet one. A credit cannot exceed your actual costs. If the seller agrees to more than the fees, prepaids and points you owe, the surplus has nowhere to land and does not come back as cash. There is no version of this where you leave the closing table with the seller's money in your pocket.
What to do with this before you ask for anything
Three steps, and the first costs you a phone call.
- Ask your loan officer for your ceiling as a figure, not a rule. Name your program, occupancy and loan-to-value ratio, then ask what the maximum is and what is already consuming it. A seller paying points, buying down your rate or covering a title premium spends the room you want.
- Ask what your actual closing costs, prepaid items and points add up to. That number, not the cap, is often the real ceiling. On an FHA loan, ask separately whether anything you hope to cover is part of the minimum required investment, which cannot be covered at all.
- If what you need exceeds what is left, change instruments rather than pushing the number. A price reduction is not an interested party contribution and no cap reaches it. The trade-offs are in seller credit versus price reduction, and the broader choice in negotiating after a home inspection.
And the honest warning: these caps change. Fannie Mae reissues its section on announcement cycles, the FHA handbook is mid-modernization, the two VA documents disagree about the base, and USDA has a proposed rule outstanding. Nothing here substitutes for your lender confirming your number on the day you ask.