VA Loan Articles
VA Loans and Seller ConcessionsWhen buying a home with a VA loan, the seller can offer concessions that make the sale more attractive to the buyer. These concessions are defined by the Department of Veterans Affairs as ".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."
Seller concessions often take the form of gifts. A typical gift example would be the seller including an appliance or a television in the sale of the home. Concessions may also include the seller paying the VA funding fee (which the VA loan applicant is normally required to pay) or paying points on the loan to lower the interest rate.
VA seller concessions may even include paying insurance or property taxes for the buyer and putting money in escrow to give the buyer a temporarily reduced interest rate buydown.
The Department of Veterans Affairs has built-in protections for VA loan applicants-rules that keep the loans fair for both buyer and lender alike. Those rules include a few protections against over-competitive concessions that might tempt vets into applying for loans they really can't afford.
One of those protections is a cap on the value of all seller concessions. The total value of those concessions must not exceed 4% of the "established reasonable value of the property." That keeps the seller from offering so many concessions that a buyer is tempted to take out a VA home loan amount they can't really afford.
That value cap on seller concessions requires the seller to keep track of the value of the concessions offered, but some things the buyer can do for the seller don't count as a concession-unless they exceed certain limits. For example--under VA rules, paying the buyer's closing costs is not considered a concession. Nor is paying discount points typical for the housing market in question.
But if the buyer pays points above and beyond what's typical for the market, payment of the additional points IS considered a seller's concession.
Confusing, isn't it?
The best way to proceed in these situations is to have the buyer list his or her concessions--gifts of appliances or a television and other clearly identified seller concessions, plus any other activity taken on behalf of the buyer such as paying closing costs or buying discount points. Present the list to your lender to see whether it meets or exceeds the VA 4% rule. Your lender can give you and the seller advice on how to proceed if the concessions don't fall at or under the limit.