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One way to save on closing costs when buying a home is to discuss seller concessions. Seller concessions are when a VA homebuyer asks the home seller to pay costs associated with the VA loan on the buyer's behalf. The VA’s policy on seller concessions is rather flexible but requires that they do not exceed 4 percent of the loan amount.
To be clear, seller concessions go beyond the typical closing costs associated with obtaining a mortgage. When it comes to those costs, VA buyers can ask sellers to pay all of their loan-related costs. The 4 percent in concessions is an additional bonus.
This guide will discuss how seller concessions work and what costs they can cover.
How Do Seller Concessions Work?
Seller concessions are anything of value added to the transaction by the builder or seller that the buyer is not responsible for. These fees can include anything not paid by the buyer or covered by a lender credit. Seller concessions are fees not typically expected or required to be paid for by the seller.
Seller concessions do not include the payment of the buyer’s closing costs or points. Again, seller concessions cannot exceed 4 percent of the loan amount.
The following are common seller concessions:
- Origination fee: This fee is the cost to underwrite and process your loan.
- Appraisal fee: VA appraisals are mandatory, and assess the home in accordance with VA minimum property requirements. The appraisal also values your home based on comparable properties in the area, also called ‘comps’.
- Title insurance: This is a required fee by lenders. The title policy protects the lender in the event of a property dispute. This is a mandatory fee when buying a home.
- Property taxes: The seller can prepay these fees for a certain time frame.
- Attorney fees: Some states require an attorney to conduct the closing, which comes with its own fees.
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Explaining the 4% VA Seller Concession Rule
VA rules say that the value of a seller concession can equal as much as 4 percent of the selling price. Again, that's in addition to "normal" discount points and payment of the buyer's loan-related closing costs.
For the sake of comparison, conventional loans typically allow sellers to pay 3 percent in concessions, while FHA borrowers can ask sellers to pay up to 6 percent.
Sellers are not required to offer concessions or pay any of a VA buyer's closing costs. This is always a matter of negotiation between the two parties, and this is where having a VA-savvy real estate agent can make a huge difference. Some sellers will be more likely than others to pay concessions in order to get their home sold.
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How Seller Concessions Help Homebuyers
To see the importance of seller concessions, imagine that you buy a property for $200,000. The local market is weak. The owner — unable to sell for months — agrees to pay all closing costs plus $8,000 to pay off an auto loan balance. Paying off the car loan saves $200 a month.
When the property closes, the official record will say that it sold for $200,000. In fact, the VA buyer will have no closing costs, no down payment, and in this case, a pesky $8,000 debt paid off at settlement.
You can learn more about VA seller concession policies by speaking with a Veterans United loan officer.
ByChris Birk, Vice President of Mortgage Insight
Chris Birk is the author of “The Book on VA Loans: An Essential Guide to Maximizing Your Home Loan Benefits.”An award-winning former journalist, Chris writes about mortgages and homebuying for a host of sites and publications. His analysis and articles have appeared at The New York Times, the Wall Street Journal, USA Today, ABC News, CBS News, Military.com and more.More than 300,000 people follow VA Loans Insider, his interactive VA loan community on Facebook.
About Our Editorial Process
Veterans United is recognized as the leading VA lender in the nation, unmatched in our specialization and expertise in VA loans. Our strict adherence to accuracy and the highest editorial standards guarantees our information is based on thoroughly vetted, unbiased research. Committed to excellence, we offer guidance to our nation's Veterans, ensuring their homebuying experience is informed, seamless and secured with integrity.
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