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VA Loans and Seller Concessions

Published August 6, 2010
2 min read

When 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."

Concessions may 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.

The VA lists the following as seller concessions that can be included in the sale:

  • Payment of the buyer's VA funding fee;
  • Prepayment of the buyer's property taxes and insurance;
  • Gifts such as a television set or microwave oven;
  • Payment of extra points to provide permanent interest rate buydowns;
  • Provision of escrowed funds to provide temporary interest rate buydowns;
  • Payoff of credit balances or judgments on behalf of the buyer.

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 veterans 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 there are some things the buyer can do for the seller that don't count as a concession unless they exceed certain limits.

For example, under VA rules, paying the buyer's loan-related 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.

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