Navigating the nuances of VA loan seller paid closing costs can be a bit confusing, but understanding these can benefit both sellers and buyers in a real estate transaction.
By rule, the VA max seller paid closing costs can’t exceed 4% of the total home loan.
However, this rule covers only some closing costs, including the VA funding fee; the rule doesn’t cover loan discount points.
Here’s a detailed breakdown to help demystify the process.
Table of Contents
Who Pays for VA Loan Closing Costs?
For VA loans, the seller must pay these closing costs (often called seller’s concessions):
- Commission for real estate professionals
- Brokerage fee
- Buyer broker fee
- Termite report (unless you’re using a refinancing loan)
The buyer or the seller can negotiate who will pay other closing costs such as:
- VA funding fee
- Loan origination fee
- Loan discount points or funds for temporary “buydowns”
- Credit report and payment of any credit balances or judgments
- VA appraisal fee
- Hazard insurance and real estate taxes
- State and local taxes
- Title insurance
- Recording fee
Note: By VA rule, a seller can’t pay more than 4% of the total home loan in seller’s concessions. But this rule covers only some closing costs, including the VA funding fee. The rule doesn’t cover loan discount points.
You might like this article we wrote called: 20 Proven Strategies for Negotiating Closing Costs!
What is the VA Seller Concession Limit?
Under VA loan guidelines, sellers can contribute up to 4% of the sale price plus reasonable and customary loan costs.
This is unique because these contributions can exceed the 4% mark since standard closing costs do not count toward this total.
The 4% rule applies specifically to items such as prepayment of property taxes and insurance, appliances, discount points above 2% of the loan amount, payoff of the buyer’s judgments and debts, and payment of the VA funding fee.
What Are Seller Concessions?
Seller concessions refer to the funds a seller agrees to contribute towards a buyer’s closing costs, making the upfront cost of home ownership more accessible.
These can cover a variety of fees, including origination fees, appraisal fees, title insurance, property taxes, and attorney fees, depending on the state requirements.
Seller concessions can significantly lower the barrier to homeownership, particularly for VA loan borrowers who benefit from the program’s flexible guidelines.
The VA Seller Concession Rule Explained
According to the VA’s lender handbook, “any seller concession or combination of concessions that exceeds 4% of the established reasonable value of the property is considered excessive, and unacceptable for VA loans.”
The VA seller concession rule allows concessions up to 4% of the selling price, which is in addition to normal discount points and payment of the buyer’s loan-related closing costs.
This rule is somewhat more generous compared to conventional loans and FHA loans, which typically allow lower percentages in seller concessions.
It’s important to note that sellers are not obligated to offer concessions.
The willingness to offer concessions can vary and is always a matter of negotiation between the buyer and seller, often facilitated by a knowledgeable real estate agent.
Misconceptions and Clarifications
There’s a common misconception that the VA limits the amount a seller can contribute to closing costs to 4%, but this cap primarily applies to certain specific concessions.
The VA guidelines allow sellers to cover closing costs that are reasonable and customary, which do not fall under the 4% cap.
This includes title charges, loan charges, recording fees, and real estate administrative fees.
Essentially, the VA’s 4% rule excludes typical closing costs, allowing more flexibility to cover a veteran’s expenses.
How to Utilize Seller Concessions Effectively
Seller concessions can be creatively used to cover not just the closing costs but also to prepay insurance, taxes, and even upfront fees for government loans like FHA, VA, and USDA fees.
This flexibility can significantly reduce the amount of cash buyers need to bring to closing, making homeownership more attainable for veterans and active service members.
Conclusion & Wrap-Up
In summary, understanding the specifics of VA loan seller paid closing costs can empower veterans and active military members in the home buying process.
The VA loan program’s allowances for seller concessions offer a notable advantage, helping to reduce upfront costs and facilitate smoother transitions to homeownership.
When navigating these aspects of a VA loan, working with a lender and real estate agent who are well-versed in VA requirements can provide valuable guidance and support.
VA Seller Concessions Guidelines
Click the file below to view and download the official VA seller concessions guidelines:
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About the Author
Brian Reese is a senior advisor and co-owner at District Lending. He is one of the world’s leading experts in veteran benefits, having helped millions of veterans secure their financial future since 2013. Brian is the founder VA Claims Insider, an education-based Coaching & Consulting company whose mission is to educate and empower veterans to get the VA disability benefits they’ve earned for their honorable service. A former active-duty air force officer, Brian deployed to Afghanistan in support of Operation Enduring Freedom. He is a distinguished graduate of management of the United States Air Force Academy and earned his MBA as a National Honor Scholar from the Spears School of Business at Oklahoma State University.
