The short answer: California home sales fell 6.5% from a year earlier in September 2026, but the statewide median price still rose 1.7%, according to the California Association of Realtors. That means buyers have more room to negotiate on terms than on price. A seller credit toward your closing costs or a rate buydown can be worth more to you than a small price cut, but loan rules cap it: generally 3% to 9% of the price on conventional loans depending on your down payment, and 6% on FHA loans.
As of October 22, 2026. Rates mentioned are national survey averages, not quotes.
Is it a buyer's market in California right now?
It's a slower market, and that's not quite the same thing. The California Association of Realtors (C.A.R.) reported on October 19 that existing single-family home sales ran at a 260,410 annualized pace in September, down 3.4% from August and 6.5% from a year earlier. The statewide median price was $899,720, up 1.7% from September 2025. Active listings rose 0.5% from a year ago, the first annual increase in eight months, and homes sold in a median of 29 days (C.A.R., October 19, 2026).
Here in Los Angeles County, sales were down 10.9% from a year earlier, while the median price was $994,670, up 1.2%. Across Southern California, sales fell 9.1% and the median rose 3.0% to $895,000.
C.A.R.'s chief economist put it plainly: slower sales "may not translate into a comparable decline in prices in the near term." News coverage of the same report described sellers who are "holding their ground" on price and more of them offering concessions, such as paying points to lower a buyer's rate (California Home News, October 19, 2026).
The reason is financing costs. Freddie Mac's national 30-year average was 7.32% for the week of October 22, 2026, down from 7.40% the week before, and averaged 6.86% in September, up from 6.35% a year earlier (Freddie Mac, October 22, 2026; C.A.R.). Fewer buyers can qualify, so the ones who can have more say in the deal.
What is a seller credit, and what can it pay for?
A seller credit (lenders call it an "interested party contribution") is money the seller agrees to put toward your costs at closing. Depending on the loan, it can cover:
- Closing costs such as lender fees, title, escrow and appraisal
- Prepaid items like property taxes, homeowners insurance and interest
- Discount points to permanently lower your rate
- A temporary rate buydown (for example, a lower rate for the first year or two)
What it can't do is pay your down payment or count toward the cash reserves a lender requires. Fannie Mae also says the credit can't be more than your actual closing costs; anything above that is treated as a price reduction (Fannie Mae Selling Guide B3-4.1-02). On FHA loans, seller contributions can go toward origination fees, other closing costs and discount points (HUD Single Family Housing Policy Handbook).
How much can a seller give me toward closing costs?
It depends on your loan type, how much you put down and how you'll use the home. For a conventional loan sold to Fannie Mae, the limits are based on the lower of the price or the appraised value:
Maximum seller credit, as a share of the price
Commissions the seller customarily pays don't count toward these caps. FHA also allows up to 6% of the sales price (HUD).
A hypothetical example: on a $900,000 purchase with 10% down on a conventional loan, the cap would be 6%, or up to $54,000, but only up to your actual closing costs. With 5% down, the cap drops to 3%, or $27,000. These figures are illustrations only, not an offer or estimate for any loan.
Should I ask for a price cut or a seller credit?
On paper, a price cut and a credit can cost the seller the same. For you, they work very differently.
A price cut lowers your loan amount a little, which trims the payment slightly over the life of the loan and can lower your property tax base (in California, that's set by your purchase price). A credit puts cash to work on day one: it can lower what you need to bring to closing, or buy down your rate. When rates are high and cash is tight, the credit often does more for a buyer, especially a first-time buyer who is stretching to cover closing costs.
Price cut vs. seller credit: what each does for you
| Price cut | Seller credit | |
|---|---|---|
| Lowers cash needed at closing | No only slightly, via a smaller down payment | Yes |
| Can lower your interest rate | No | Yes via points or a buydown |
| Lowers your loan amount | Yes | No |
| Lowers your property tax base | Yes | No |
| Capped by loan rules | No | Yes 3% to 9% conventional, 6% FHA |
Often the best answer is a mix: a modest price adjustment plus a credit sized to your actual closing costs. Ask your lender for a fee worksheet before you negotiate, so you know exactly how big a credit you can use.
Is a temporary rate buydown worth it, or should I buy points?
A temporary buydown (often called a 2-1 or 1-0 buydown) lowers your rate for the first year or two, then it steps up to your full note rate. Fannie Mae caps these at three years, with the rate rising no more than 1% a year, and you must qualify at the full note rate, not the reduced one (Fannie Mae Selling Guide B2-1.4-04). It helps with early cash flow, but it doesn't make an unaffordable payment affordable.
Discount points lower your rate for the life of the loan. They tend to make more sense if you plan to keep the loan for many years. If you think rates may fall and you'd refinance, a temporary buydown or a closing-cost credit may be the better use of the seller's money. I compared these trade-offs, along with refinancing and rate locks, in what higher rates mean for California homeowners and buyers this fall.
Reading from outside California? The Fannie Mae and FHA limits apply nationwide. The sales and price figures above are California-specific, and in many states the property tax point about price cuts works differently.
Derek\'s take
In 20 years and more than 1,200 loans, I've learned that slower markets reward prepared buyers, not just patient ones. Sellers right now are often more willing to help with costs than to drop their price, and the loan rules decide how much of that help you can actually use. Before you make an offer, I'd like you to know your closing costs, how big a seller credit your loan allows and whether a buydown or points fits your plans, so your agent can negotiate with real numbers. If you're house hunting this fall, book a call with me and we'll map it out. Thirty minutes, no credit pull, no obligation.
Frequently asked questions
Are California home prices dropping in fall 2026?
Not statewide. C.A.R. reported a September 2026 median of $899,720, up 1.7% from a year earlier, even as sales fell 6.5%. Los Angeles County's median was $994,670, up 1.2%.
How much can a seller pay toward my closing costs on a conventional loan?
Under Fannie Mae's rules for a primary home or second home, up to 3% of the price with less than 10% down, 6% with 10% to 25% down, and 9% with 25% or more down. Investment properties are capped at 2%. The credit can't exceed your actual closing costs.
What is the seller credit limit on an FHA loan?
HUD allows interested parties, including the seller, to contribute up to 6% of the sales price toward origination fees, other closing costs and discount points.
Can a seller credit pay my down payment?
No. Seller contributions can't be used for the down payment or required reserves under Fannie Mae's rules.
Do I have to qualify at the lower rate with a 2-1 buydown?
No. On Fannie Mae loans you qualify at the full note rate, so the buydown helps with early payments but doesn't increase how much you can borrow.
This article is for general education and is not an offer of credit or a commitment to lend. All loans are subject to credit approval, income and asset verification, and property appraisal. Rates cited are national survey averages, not rates offered by Emory Financial.
Sources
- California Association of Realtors, September 2026 home sales and price report (October 19, 2026)
- California Home News, "House hunters gain leverage, not bargains" (October 19, 2026)
- Freddie Mac, "Mortgage Rates Decrease to 7.32%" (October 22, 2026)
- Freddie Mac Primary Mortgage Market Survey
- Fannie Mae Selling Guide B3-4.1-02, Interested Party Contributions
- Fannie Mae Selling Guide B2-1.4-04, Temporary Interest Rate Buydowns
- HUD Single Family Housing Policy Handbook 4000.1, Interested Party Contributions
This article is general education, not a commitment to lend, an offer of credit, or tax, legal or investment advice. All loans are subject to credit approval, income and asset verification, and property appraisal. Programs, rates, terms and limits change without notice; figures are current as of the publish date. Derek Shao, NMLS #242117, CA DRE #01358261. Financial Dynamics, Inc. DBA Emory Financial, Company NMLS #393986. Equal Housing Opportunity.
