VA seller concessions: A complete guide
Quick insights
- A seller concession happens during a real estate transaction when anything of value is 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.
- Examples of a seller concession include credit for prepayment of insurance or the VA funding fee.
- For transactions involving a VA home loan, seller concession is based on 4% of the established reasonable value on a property. Unlike Conventional and FHA loans, the maximum seller concession the seller can pay on VA (4%) excludes actual closing costs (e.g. appraisal or recording fees).
The costs of buying a home can add up quickly. For some buyers, seeking U.S. Department of Veterans Affairs (VA) seller concessions offers a viable way to lower the total out-of-pocket cost for a home purchase. As with all components of a real estate purchase, understanding how seller concessions work can help prospective homeowners better navigate the process.
VA seller concessions meaning
VA seller concessions represent a way for sellers or builders to cover some of a buyer’s closing costs. In other words, VA seller concessions provide value to the buyer without any additional costs. For some buyers, these upfront savings make it more feasible to purchase a home.
What is a typical seller concession?
Seller concessions can encompass a wide range of closing costs. But a few common concessions include:
- VA funding fee: Borrowers face a VA funding fee to finalize a VA home loan. Sellers can pay this unavoidable fee for the borrower.
- Pre-paid property taxes: Sellers have the option to pre-pay for the buyer’s property taxes at closing.
- Legal fees: If legal services are required during a transaction, the costs can add up quickly.
- Pre-paid insurance premiums: Like property taxes, sellers can choose to pre-pay the buyer’s insurance premiums for the term.
From the buyer’s point of view, seller concessions might make a home purchase more affordable upfront. As a seller, offering concessions that lower a buyer’s out-of-pocket costs can make your listing more competitive, especially in a buyer’s market.
How do VA seller concessions work
VA seller concessions generally come up during the home sale negotiation. Depending on the situation, the buyer might ask for seller concessions or the seller might offer concessions without prompting.
Once the buyer and seller agree to seller concessions, these details are added to the transaction contract. At closing, the seller pays the seller concessions.
VA home loan seller concessions guidelines
In many ways, VA home loans come with different guidelines from other types of mortgages. But, in terms of seller concessions, the VA home loan guidelines are relatively straightforward.
The seller has the ability to make concessions and cover different types of closing costs for the buyer. Some common seller concessions include covering the VA funding fee and some insurance costs.
What are the maximum seller concessions for a VA loan?
The U.S. Department of Veterans Affairs allows sellers and builders to cover some or all of a buyer’s closing costs. But the maximum for seller concessions, excluding closing costs, is capped at 4% of the reasonable value of the home.
You’ll find the home’s reasonable value in your VA Notice of Value document, which your lender should provide to you.
What are the benefits of VA seller concessions for buyers and sellers?
VA seller concessions can make a transaction more appealing to a buyer and help sellers move a property. Below is a closer look at the benefits for both parties.
Benefits of VA seller concessions for buyers
The benefits of VA seller concessions for buyers are fairly straightforward. They include:
- Lower upfront purchasing costs: Buyers can tap into lower out-of-pocket costs for purchasing a home. With lower upfront costs, this opens the door to homeownership for some buyers.
- More funds available for down payment: With seller concessions, you can put more of your savings toward a down payment that lowers the loan amount instead of covering closing costs.
Benefits of VA seller concessions for sellers
For sellers who want the sale to go through quickly, seller concessions could offer a solution. The benefits include:
- Making a deal happen: Although sellers making concessions technically lose out on value, it often helps a deal happen. Seller concessions are often especially useful in competitive buyer’s markets.
- Attracting potential buyers: If a limited number of buyers can choose from a large housing supply, offering concessions might sway a buyer to move forward with purchasing the home.
VA seller concessions FAQ
Can a seller pay closing costs on a VA loan?
Yes, sellers can pay closing costs on a VA loan in the form of seller concessions.
What is the 4% rule on a VA loan?
A VA loan allows sellers to make concessions. But the concessions are limited to 4% of the home’s reasonable value. For example, if the home in question is worth $250,000, then the maximum seller concessions are $10,000.
What types of seller concessions are allowed on a VA loan?
A few common seller concessions include the VA funding fee, property taxes and some insurance costs.
In summary
As you navigate your homebuying journey, understanding VA seller concessions might help you find a pathway with fewer out-of-pocket costs. When negotiating for seller concessions, consider leaning on the expertise of a real estate professional to get the most value out of the transaction.
