When purchasing a home, it's important to consider more than just the property's price. Other expenses can add up quickly and impact your overall affordability.
During the negotiation process, buyers using a VA loan may request that sellers provide additional concessions (or payment) to assist with some of the expected costs related to the homebuying process.
Seller concessions, also known as seller contributions or seller assistance, are closing costs the seller agrees to pay to help the buyer reduce the upfront expenses of buying a home.
This means the seller covers VA loan costs that are usually the buyer's responsibility. Seller concessions can be a great way for homebuyers to save money when purchasing a property.
While seller concessions with a VA loan will vary depending on the home and buyer, some examples include:
If you’re purchasing a home with a VA loan, the VA mandates that the total value of seller concessions must not exceed 4% of the "established reasonable value” of the property. However, this doesn’t count typical closing costs, so buyers can ask sellers to cover any loan-related costs at closing as well.
The 4% rule 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. In comparison, conventional loans typically set a 3% cap on seller concessions.
The VA caps seller concessions at 4% of the home’s established reasonable value, which is typically determined during the VA loan appraisal process. If the home you are purchasing appraises for $400,000, then seller concessions are capped at $16,000.