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.
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).
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.
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.
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