VA loans are unique because they allow eligible borrowers to purchase a home with 100% financing – a true no-down payment mortgage. Although there are also other benefits that come from obtaining a VA loan, the allowable seller contributions to the transaction are above any other mortgage. However, knowing the difference between seller concessions and seller paid closing costs is important and may require the assistance of an experienced VA lender.
According to the Veteran’s Administration, 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”. In addition to this, seller concessions do not include any payment made to the buyer’s closing costs, but are actually in addition to seller paid closing costs.
VA Loan: Seller Concessions
Seller concessions can be made for the following (but not limited to) and cannot exceed 4% of the of the sales price:
-payment of the buyer’s VA funding fee
-prepayment of the buyer’s property taxes and insurance
-payment of extra points to provide permanent interest rate buy-down
-provision of escrowed funds to provide temporary interest rate buy-downs, and
-payoff of credit balances or judgments on behalf of the buyer.
The VA loan is the only type of mortgage that allows a seller to pay off a buyer’s debt, such as credit card balances. Basically, concessions can be looked at as a gift from the seller to the buyer. This is why the following items are not considered seller concessions:
-payment of the buyer’s closing costs, or
-payment of points as appropriate to the market.
VA Loan: Seller Paid Closing Costs
In addition to seller concessions, sellers can pay for all or part of the buyer’s closing costs as follows:
– VA appraisal
– Credit report
– State and local taxes
– Recording fees
– Title fees
– Lender fees (Veteran Home Financing never charges lender fees)
– Customary market origination points (Many lenders do not charge this)
When it comes to seller paid closing costs, VA loans do not set a maximum cap so that a seller can pay for all of these expenses. In addition, with a VA loan, the buyer is not allowed to pay for the termite inspection and report, but must be paid by the seller. The VA protects it borrowers from excessive and unnecessary expenses that would otherwise be charged by some lenders.
A knowledgeable lender should be consulted in order to determine the difference between seller concessions and seller paid closing costs. Remember that when choosing someone to work with, the lender sets the mortgage rate and lender fees which means that shopping around may be necessary in order to receive the best VA loan available.
My loan process was very easy and quick. Not to mention a great loan rate. I couldn't be happier!
Capt Sam T. - US Army
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