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corner house with an american flagSince 1944, the Department of Veterans Affairs has been making home loans available to those who have served our country. The VA loan has a number of advantages, including some of the lowest available rates and the ability to purchase or refinance with no down payment.

The policy on seller concessions for VA loans is changing in a way that could make the program even more attractive to eligible active duty service members, veterans and their surviving spouses.

Before we go any further, let’s stop the record for a second and go over what a seller concession is.

Seller Concessions

Buyers are always looking to keep the price down and sellers obviously want as much money as they can get of their house. You can negotiate on the actual price, but seller concessions allow the two parties to negotiate other aspects.

Concessions allow for sellers to pay for things like prepaid interest points so buyers can get into the house with a lower rate; the appraisal, origination fees, title insurance and so on are also common concessions.

There are some things that sellers aren’t allowed to help with, including the down payment. They also can’t include furniture in the seller concessions. In order to help in these areas, sellers have to lower the asking price.

The maximum amount of the contribution is based on a percentage of the appraised value or sales price (whichever is lower).

Going Unlimited

We’re removing the caps on seller concessions for certain closing-related expenses. This means that sellers can contribute as much as they want toward closing costs in the following categories:

  • Discount points – Discount points are prepaid interest. Prepaying a certain amount of interest allows you to buy down your interest rate.
  • Origination costs – These are the costs associated with the lender actually setting the loan up.
  • Miscellaneous fees – Sellers can help pay for a property survey, appraisal, credit report and other things associated with getting the loan.

4% Rule

Sadly, not everything is unlimited. There are some things that sellers can only contribute 4% of the purchase or appraisal price for. These include:

  • Escrow ­– The seller is limited in the amount they can pay toward a buyer’s taxes and insurance.
  • Funding fee – Although there’s not a required down payment on VA loans, there’s a funding fee paid at closing that helps support the loan program.

Seller concessions are just one way to keep closing costs at bay. If you can’t renegotiate the sales price to limit the amount you bring to the table, you could take advantage of lender credits by taking a slightly higher interest rate.

That covers the changes to the seller concessions. Here’s some more information on the VA home loan. Still have questions? Leave us a note in the comments.

This Post Has 6 Comments

  1. I have someone wanting to buy my house. A va loan for 25000.00 above asking price then after closing I give him 25000.00. Is this legal. Thank you

    1. Hi Gary:

      I wouldn’t do this after closing. I will tell you this is a common strategy to essentially build closing costs into the loan. The way it works is that the person offers you above the asking price and then you will pay that amount back toward the closing costs, but it’s all handled before and during the close. Doing it after the close isn’t something that’s typical and may be illegal. I would tell them you’ll do it at closing.

  2. Really my credit score is now around 638 and I working on paying off 1 more of my old debts in the next week which when reported will increase my score I’m a retired veteran with my cetificate for housing and is looking for a town home or condo or home I rent now a 1 bed room for 1300 a month but want to buy what are my chances really getting finances with no money down with your company

    1. Hi Ervin:

      Every situation is different, but we can definitely help you look into your options. Someone will be reaching out tomorrow.

      Kevin Graham

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