$350,000 Home With 3% Down and an $8,000 Seller Credit

How the $8,000 seller credit works

The credit is a contract term. It does not reduce the $350,000 price in this example, and it does not become part of the buyer's down payment. Instead, the closing statement applies the credit against eligible transaction costs that actually exist and are permitted by the loan program.

The $8,000 credit equals 2.29% of the price. Under Fannie Mae's current interested-party contribution rules, the maximum financing concession is 3% for an eligible principal-residence transaction above 90% LTV. The actual allowance still depends on occupancy, property type, appraisal, contract, eligible costs, underwriting, and lender requirements. A credit also cannot exceed the borrower's actual closing costs.

Seller credits cannot provide the required 3% down payment, required reserves, or unrestricted cash back. If actual eligible costs are less than $8,000, the unused amount generally does not become cash for the buyer.

What the credit could cover

Eligible charges can include lender and third-party items shown on the Loan Estimate, Texas title charges, government recording charges, prepaid interest, homeowners insurance, and initial escrow funding. The exact mix changes with the property, loan, service providers, insurance, tax timing, closing date, and contract.

The Texas closing-cost guide maps these categories, while the seller-concessions guide owns the broader contribution rules. The who-pays guide explains negotiated allocation, and the calculator can model a file with current inputs.

Cash to close is not just down payment plus fees

Cash to close is a net calculation. It starts with the down payment and closing costs, then accounts for items such as deposits already paid, seller and lender credits, and transaction adjustments. In this example, $8,000 of modeled eligible costs is offset by an $8,000 seller credit, so the starting modeled amount due is the $10,500 down payment.

Earnest money already delivered under the contract can reduce the remaining amount due because it is a deposit, not a seller credit. Property-tax prorations can also affect the final figure. CFPB's Closing Disclosure interpretation treats seller credits and prorations as separate entries that both flow into the final cash-to-close calculation.

Mortgage insurance at 97% LTV

Conventional borrower-paid private mortgage insurance normally applies at 97% LTV. For a strong-credit file, the premium can be comparatively inexpensive, but the actual price varies with credit, LTV, loan term, occupancy, property, coverage, insurer, and lender. This scenario does not promise a premium.

Read what PMI is and how conventional PMI can be removed. FHA mortgage insurance follows different rules, so a conventional and FHA comparison should use the same price, down payment, rate assumptions, and time horizon.

HomeReady and Home Possible income boundary

An income-eligible buyer may also compare HomeReady and Home Possible. Each program uses an income limit generally tied to 80% of area median income, along with its own borrower, property, occupancy, education, mortgage-insurance, and underwriting rules.

The 80%-of-AMI boundary is an eligibility screen, not an approval promise. Income eligibility does not replace credit, capacity, collateral, automated-underwriting, lender, and transaction review.

What must be confirmed before making the offer

• The buyer qualifies for the selected 3% conventional program and 97% LTV.
• The appraisal supports the contract price without treating the credit as an improper price concession.
• The contract clearly states the seller contribution and any limits on its use.
• The Loan Estimate supports enough eligible costs to use the proposed credit.
• The buyer can document the required down payment, reserves if required, and any remaining cash to close.
• The lender and settlement agent reflect deposits, credits, and prorations correctly on the final Closing Disclosure.