How much can a seller pay towards a VA loan closing costs?
Now, this topic brings quite a bit of confusion, and in today’s video I am going to walk you through the specifics and share with you some qualifying details that you may not have been aware of.
However, if you have a qualifying question or a loan approval that is experiencing trouble, remember that I started the company way back in 2001, so let our experience be a resource for you and take advantage of our Free Second Opinion Service (“SOS”).
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How much can a seller pay in closing costs on a VA loan?
Unfortunately, there is a myth passed on by many lenders that the maximum VA will allow a seller to pay is 4% towards closing costs, but today we will “bust” that myth and dive into the details.
As a starting point, VA guidelines define a seller concession as the following:
“a seller concession is 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”
With that being said, VA includes the following examples of what could be paid through seller concessions:
- 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, and
- pay off of credit balances or judgments on behalf of the buyer.
Yes, believe it or not, a seller can pay off a veteran’s credit balances at closing through seller concessions, and VA also states that, “any seller concession or combination of concessions which exceeds four percent of the established reasonable value of the property is considered excessive, and unacceptable for VA-guaranteed loans.”
However, many lenders mistakenly conclude that there is a 4% cap on what a seller can pay, but because “seller concessions do not include payment of the buyer’s closing costs, or payment of points as appropriate to the market” this shows that the 4% cap only applies to certain charges such as those discussed.
Additionally, common examples of closing costs which are not included within the 4% cap would be title company charges, property surveys, recording fees, loan charges, and real estate administrative fees.
In summary, if you have a veteran who wants to purchase a home with a no down payment VA loan, the flexibility allowed can help them achieve homeownership and reduce their costs through what a seller is allowed to pay for at closing.
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