Updated October 29, 2026
A $20,000 seller credit and a $20,000 price cut cost you almost the same; the price cut is slightly cheaper, because agent compensation and transfer tax are figured on the price. What really changes is what the buyer can do with the money. A credit can pay the buyer's closing costs or buy down their interest rate, which can lower their monthly payment far more than a price cut of the same size. But the buyer's lender caps credits, a credit can't go toward the down payment, and appraisers adjust for credits on comparable sales, so a credit doesn't really "protect" your sale price as a comp. Pick the one the buyer's lender will accept and that gets the deal closed.
What each one does
Price reduction | Seller credit | |
|---|---|---|
Contract price | Goes down | Stays the same |
Your net proceeds | Down by the amount, minus the commission and transfer tax you no longer pay on it | Down by the full amount |
Buyer's loan amount | Smaller | Unchanged |
Buyer's cash at closing | Less down payment needed (if a percentage) | Less needed for closing costs |
Limit | None | Capped by the buyer's lender and by the buyer's actual closing costs |
Can fund the down payment | n/a | No |
Every credit has to be written into the purchase contract or an addendum and paid through escrow.
The lender limits
For conventional loans backed by Fannie Mae, seller credits ("interested party contributions") are capped by the buyer's loan-to-value ratio (Fannie Mae Selling Guide B3-4.1-02):
Buyer's loan-to-value (main home or second home) | Maximum credit |
|---|---|
Over 90% (less than 10% down) | 3% |
75.01% to 90% (10% to just under 25% down) | 6% |
75% or less (25% or more down) | 9% |
Investment property, any down payment | 2% |
The percentage is of the lower of the price or the appraised value. A credit above the limit, or above the buyer's actual closing costs, is treated as a price concession and subtracted from the price for the loan. Jumbo loans, which are common in Irvine, aren't covered by these rules; each jumbo lender sets its own, so ask the buyer's lender before you agree to a number.
Example: on a $1.25 million sale with 20% down on a conventional loan, 6% would be $75,000. That's the cap, not a typical credit, and the credit still can't exceed the buyer's actual closing costs.
Why a credit can matter more to the buyer
Say a buyer pays $1.25 million with 20% down and a $1 million, 30-year loan at 7.32%, the national average rate Freddie Mac reported on October 22, 2026. The monthly principal and interest is about $6,870.
- A $20,000 price cut lowers the loan by $16,000 (the buyer still puts 20% down), saving about $110 a month.
- A $20,000 credit used to buy down the rate. If the buyer's lender quotes, say, 0.5% lower for that amount in points, the payment drops by about $340 a month.
How much rate a dollar of points buys depends on the lender and the day, so the buyer's lender has to quote it. A credit can do more for a buyer who's stretching on the monthly payment.
Does a credit protect my sale price as a comparable?
Less than people think. The contract price stays the same, but Fannie Mae requires appraisers to adjust comparable sales that included concessions, so the market reaction to the credit is taken out (B4-1.3-09). And a large credit on your own sale makes the appraiser look harder at whether the price is supported. If the price is already at the top of what recent sales support, a big credit can lead to a low appraisal.
Which to choose
There's no single right answer; it depends on the buyer, the loan and where the deal is stuck. Some common cases:
- The buyer is financing and short on cash or worried about the payment: a credit, sized within the lender's limit and the buyer's closing costs, usually helps more.
- The buyer is paying cash: there's no loan to buy down and fewer closing costs, so a price reduction is usually simpler.
- The appraisal is tight: a price reduction lowers the number the appraiser has to support; a credit doesn't.
- After inspection: a credit avoids managing repairs during escrow, but it still has to fit the lender's limits. See repair requests after inspection.
FAQ
Is a seller credit the same as a price reduction for my net?
Almost. A price cut is slightly cheaper for you, because commission and transfer tax are figured on the lower price; on a $20,000 cut at about 5% compensation, that's roughly $1,000. The bigger differences are the loan amount, the lender's limits and what the buyer can use the money for.
How much can a seller credit be in California?
It depends on the buyer's loan, not on California law. For Fannie Mae conventional loans it's 3%, 6% or 9% of the price or appraised value, whichever is lower, depending on the down payment (2% for investment property), and never more than the buyer's actual closing costs. Jumbo lenders set their own limits.
Can a seller credit be used for the down payment?
No. Lenders don't allow seller credits to fund the down payment.
Does a seller credit affect the appraisal?
It can. Appraisers adjust comparable sales for concessions, and a large credit may make the appraiser question whether the price is supported.
Getting ready to sell? Start with what your home is worth today. Get your home value.
About Irene and Ricky Zhang: RealTrends Verified ranks Irene and Ricky Zhang the #1 small team in Irvine by both sales volume and transaction sides (2026 City Rankings, based on 2025 production). Loan rules are from the Fannie Mae Selling Guide as of October 2026; mortgage rate from Freddie Mac's Primary Mortgage Market Survey.
