Recently I became aware of a real estate transaction where the Buyer decided to change from Conventional Financing to VA Financing, after the effective date of the contract.  This Buyer didn't ask the Seller to contribute toward their closing costs.  The Buyer decided that they wanted to get a VA loan, so their agent sent the FHA/VA Addendum to the Seller's agent requesting the Seller's signatures.

Here's the problem... VA loans prohibit Buyers from paying certain types of fees that are often charged by lenders, escrow companies, settlement agents, and title companies. They are called "non-allowable" fees. They still get charged anyway, but Buyers are "not allowed" to pay them. The result is that the Seller ends up paying them instead and their net proceeds from the sale are reduced.  Non-allowable fees can vary by location... in this case the Buyer's non-allowable fees that the Seller is being asked to pay are over $1500! 

So, with less than 2 weeks until closing, this deal may be dead.  All because the correct financing type and required addendums weren't included with the Offer to Purchase and Contract.

In the State of North Carolina, if the Seller had already agreed to contribute at least $1500 toward the Buyer's Closing Costs, there would be no problem.  Because, the NC Offer to Purchase & Contract states "Seller shall pay at closing $______ toward any of Buyer's expenses associated with the purchase of the property, including any FHA/VA lender and inspection costs, that Buyer is not permitted to pay, but excluding any portion disapproved by Buyer's lender.

I ALWAYS explain the additional Seller fees that may be incurred when a potenitial Buyer utilizes an FHA or VA loan, to my Seller Clients, when reviewing the Seller Net Sheet during the listing appointment.  In this case the Seller was unaware of the additional fees involved if the Buyer utilized a VA loan!

Obviously, the Buyer in this deal should have determined the type of financing they intended to use BEFORE submitting an Offer to Purchase.  But, it is our responsibility as Realtors to educate our Buyer and Seller Clients on such matters during each real estate transaction.

Have you encountered a similar situation?  What do you think?