How much can a seller pay towards VA loan closing costs?
Unlike USDA loans which allow up to 6% of the sales price towards seller paid closing costs, VA loans can provide for even higher flexibility and have unique guidelines.
However, this topic also brings quite a bit of confusion, and in today’s video, I am going to walk you through the VA specifics and explain how much a seller can actually pay towards VA loan closing costs.
Plus, please download our FREE Loan Comparison chart and see the features of VA, USDA, FHA, and Conventional Loans compared to each other in one simple chart. In it, you’ll discover maximum financing amounts, fees, waiting periods, and more. Download it now!
The VA Loan Closing Cost Myth
Unfortunately, there is a myth passed on by lenders that the maximum the VA will allow a seller to pay is 4% towards closing costs. However, today, we will be busting that myth! Let’s dive into the details.
As a starting point, VA guidelines define a seller concession as:
“a seller concession is anything of value-added to the transaction by the builder or seller for which the buyer pays nothing additional and which the seller is not customarily expected or required to pay or provide”
Additionally, VA guidelines state the following with regards to seller concessions:
“any seller concession or combination of concessions which exceeds four percent of the established reasonable value of the property is considered excessive, and unacceptable for VA-guaranteed loans.”
Many lenders mistakenly conclude from this statement that there is a 4% cap on what a seller can pay in total.
However, VA provides further instruction as follows:
“Do not include normal discount points and payment of the buyer’s closing costs in total concessions for determining whether concessions exceed the four percent limit.”
Thus, the 4% limit does not include payment of the buyer’s closing costs and only applies to specific charges. Here are common examples of closing costs that are not included within the 4% limit:
- title company charges
- property surveys
- recording fees
- loan charges
What can be paid through VA seller concessions?
VA guidelines include the following examples of what could be paid through seller concessions:
- payment of the buyer’s VA funding fee
- prepayment of the buyer’s property taxes and insurance
- gifts such as a television set or microwave oven
- payment of extra points to provide permanent interest rate buydowns
- provision of escrowed funds to provide temporary interest rate buydowns, and
- pay off of credit balances or judgments on behalf of the buyer.
As you can see, a seller can actually pay off a veteran’s credit balances (credit card balances, auto loan balances, etc.) at time of closing through seller concessions!
In summary, if you have a veteran who wants to purchase a home with no down payment, a VA loan program provides flexibility that can help them achieve homeownership. Plus, they can reduce their costs by using seller concessions.
Remember, as a VA Approved Lender, we offer in-house underwriting and are here as a resource to help our veterans walk through the VA qualifying process.
Simply call or email to discuss your scenario and let us show you the “Metroplex” difference!
800-806-9836 Ext. 280
As always, I want everyone to make it a great day and I look forward to seeing you next week!