Last week, I came across a deal where a well-meaning realtor asked the seller for $9,000 in concessions to help cover the buyer’s closing costs. The home was priced at $180,000, and the buyer was putting 3% down. Everything seemed fine — until it wasn’t.
What the realtor didn’t realize was that Fannie Mae and Freddie Mac impose rules called Interested Party Contribution (IPC) limits. For a conventional loan with less than 10% down, the maximum seller-paid closing cost contribution is just 3% of the purchase price.
That’s $5,400 — not $9,000.
Had this gone unnoticed until closing, the buyer could’ve been left scrambling to bring in an unexpected $3,600. And the seller? They would’ve been perfectly within their rights to keep the overage in their pocket.
Yes, the buyer’s agent might have gone back to the seller and said, “I messed up — can you lower the price $3,600?” But once under contract, and especially after contingencies have cleared, the seller is under no obligation to renegotiate. And why should they? A mistake in understanding mortgage guidelines shouldn’t become the seller’s error to pay for.
Most Agents Default to 3% — But That’s Not Always the Right Number
In most cases, when a realtor writes in seller-paid concessions, they default to 3% of the purchase price — and that’s not a bad starting point. On many conventional and FHA loans for primary residences, 3% is safe. In fact, it’s often the industry rule of thumb.
But here’s where trouble starts: not all loans have the same Interested Party Contribution limits — and many deals involve exceptions.
The most common mistake? Investment properties.
On conventional loans, IPCs for investment properties are capped at just 2%, regardless of down payment.
So, if you ask for 3% and you’re financing a rental property — even with 25% down — your buyer could be left unable to use the extra 1%. That’s money they planned on using to cover closing costs, now coming straight out of their pocket.
This small oversight can add up to thousands of dollars lost — and in the worst case, jeopardize the entire deal.
What Are Interested Party Contributions (IPCs)?
Interested Party Contributions are funds that a seller — or another interested party like a builder, lender, or real estate agent — agrees to pay toward a buyer’s closing costs or prepaid items.
They’re commonly used to:
- Offset loan closing costs
- Cover property taxes or homeowner’s insurance escrows
- Reduce the buyer’s out-of-pocket expenses at closing
But there are strict limits based on loan type, occupancy, and down payment amount.
Conventional Loan IPC Limits (Fannie Mae / Freddie Mac)
| Occupancy Type | Down Payment / Equity | Max IPC |
|---|---|---|
| Primary or Second Home | Less than 10% | 3% |
| 10% to 25% | 6% | |
| More than 25% | 9% | |
| Investment Property | Any amount | 2% |
Other Loan Types: FHA, VA, and USDA
| Loan Type | Max IPC | Details |
|---|---|---|
| FHA Loans | 6% | Applies only to primary residences. Contributions can go toward closing costs, prepaid items, and even upfront mortgage insurance. |
| VA Loans | 4%* | Some costs like VA funding fees and title insurance are excluded — meaning sellers can effectively cover more than 4% if structured correctly. |
| USDA Loans | 6% | Primary residences only. IPCs can be used to reduce closing costs or prepaid expenses. |
*Note: On VA loans, the 4% cap excludes many standard closing items, allowing agents and sellers more flexibility.
Quick Chart for Realtors: Keep This Handy
Why It Matters for Realtors
You don’t have to be a mortgage expert to write a great offer — but you do need to know the basics.
Requesting the wrong amount in seller concessions can:
- Create confusion or mistrust between buyer and seller
- Cause last-minute delays in closing
- Cost your client thousands of dollars
- Reflect poorly on your professionalism and knowledge
In today’s competitive market, where buyers rely on every available dollar to make a deal work, these aren’t just embarrassing mistakes — they’re expensive ones.
Final Thoughts
The best agents know how to navigate more than just the housing market — they know how to protect their clients from costly missteps.
That starts with understanding financing basics like IPC limits and asking the right questions up front.
When in doubt:
- Partner with your loan officer early
- Ask about the buyer’s down payment and loan type
- Confirm how much the seller can legally contribute
A quick check today can save your client a painful surprise tomorrow.
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