Seller Credit Structuring Under Agency IPC Rules

Seller credits are one of the most common deal tools, but IPC limits and RESPA rules create real constraints on how much can be credited and how it must be applied.

IPC Limits by Loan Type and LTV

• ✦Conventional (Fannie/Freddie): 3% IPC limit for LTV over 90%; 6% for LTV 75.01% to 90%; 9% for LTV at or below 75%
• ✦FHA: 6% seller concession limit regardless of LTV; includes contributions to closing costs, prepaids, and discount points
• ✦VA: 4% seller concession limit for non-closing-cost items (payoff of debt, funding fee); closing costs paid by seller are not subject to the 4% cap
• ✦USDA: 6% seller concession limit on guaranteed loans
• ✦Jumbo/portfolio: lender-set limits, typically 3% to 6% depending on LTV and lender

How Credits Are Applied at Closing

Seller credits can offset allowable closing costs and prepaids. They cannot be applied to the down payment under agency rules. If seller credits exceed the actual closing costs and prepaids due at closing, the excess is forfeited. The buyer does not receive cash back. This is why it is critical to calculate actual loan costs before negotiating the credit amount; a $15,000 seller credit on a loan with $9,000 in costs means $6,000 is wasted.

What Seller Credits Cannot Cover

Seller credits cannot fund reserves, reduce the principal balance, or be held in escrow for future use. Any credit that the lender cannot verify as applied to a specific cost line on the Closing Disclosure creates an IPC violation. Credits must be documented in the purchase contract and reflected on the CD at closing.