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The Truth Behind VA Loan Seller Concessions

By
Real Estate Technology with Imagine WOW! Digital Marketing Agency

va loan seller concessionsIf you are purchasing a home with a VA loan in Colorado Springs Colorado, you need to know the facts about seller concessions.

While you may be aware that the seller can offer concessions towards your purchase, you may not understand what is included. There is also a little known money-saving feature about seller concessions that most veterans are not familiar with.


What Are Seller Concessions?

The Department of Veterans Affairs defines seller concessions 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.“ Basically, the seller (or builder) is paying fees on your behalf.

This is not to say that the sky is the limit in terms of what or how much they are able to contribute. VA does have a maximum percentage on the amount the seller can pay. Seller concessions cannot exceed 4% of the purchase price. However, defining what is included in that 4% is where many get confused.

What Is Included in Seller Concessions

Seller concessions range from gifts such as a big screen TV to the payment of points to buy down your interest rate.

Nevertheless, it may surprise you to find out that a seller paying your closing costs is not considered a concession. This is a shocking detail overlooked by many lenders since the common myth is that closing costs are the only thing included in that 4%.


Included in the 4% Seller Concessions:

  • VA Funding Fee
  • Prepaid Taxes and Insurance
  • Gifts such as a television or microwave
  • Discount Points to Buy Down the Interest Rate
  • The Cost Associated with a Temporary Buy Down (also referred to as a 2-1 or 3-2-1 Buy Down)
  • Payoff of Credit Card Balances, Collections or Judgments

Payment of closing costs and normal discount points (that aren't for the purpose of buying down the interest rate) are NOT included in the 4% limitation.

Let’s take a look at an example:

You are purchasing a home for $200,000. You would multiply your purchase price by the VA cap of 4% to determine the maximum seller concessions of $8000. You might assume that the seller could then pay up to $8,000 towards the buyer’s reasonable closing costs.

What you are forgetting though is that the seller could pay any of the concessions listed above along with items that fall outside of defined concessions. That might include the payoff of a small installment loan that makes the difference between you qualifying and owning a home of your own or a denial that forces you to continue renting.

Let me be clear though. This is not a way to bilk the seller out of additional funds. It's simply an option that offers a benefit to both you and the seller; the opportunity to sell their home to you as a qualified buyer.

Talk to your lender about your VA home loan benefits and the many options you have in regards to seller concessions before writing an offer. They will require a detailed explanation of any seller concessions so be prepared to submit that list at loan application.


If you have further questions, call me for complete information on seller concessions and utilizing your VA Home Loan benefits.

 

 


The Truth Behind VA Loan Seller Concessions was written by Rebekah Radice.

Comments(13)

Gayle Rich-Boxman Fishhawk Lake Real Estate
John L Scott Market Center - Birkenfeld, OR
"Your Local Expert!" 503-739-3843

Rebekah, why do VA loan concessions or criteria vary state-to-state if it's a national loan program?  It's all a learning curve for me and posts like this further clear up the gray areas of financing for realtors like myself who haven't been in the business for fifteen years.

I ALWAYS learn from these posts like yours. *Suggest*

Aug 07, 2011 07:03 AM
Adrian Willanger
206 909-7536 AdrianWillanger-broker.com - Seattle, WA
Profit from my two decades of experience

Rebekah-It's been a few years since I've done a VA funded deal, thanks for the clarification on allowable seller paid concessions.

Aug 07, 2011 07:05 AM
Brian L. Sirota, Esq.
Bristar Realty (Realtor/Attorney) - Orange, CA
For Solutions: (714) 501-7660

Rebekah, I'm also suggesting this blog.   VA home loan info. is under blogged, let alone making it easy for consumers to understand.  Great stuff!

Brian 

Aug 07, 2011 07:11 AM
Rebekah Radice
Imagine WOW! Digital Marketing Agency - Burbank, CA
Social Media Marketing, Coaching & Training

It's not so much state to state Gayle as it is from lender to lender.  Each lender has what they call overlays or additions to the VA guidelines.  What that means is that just because VA says it's ok doesn't mean its ok by the lender.  It's very frustrating and something I spend a lot of time explaining to clients.  Thank you for the suggest!!!

Thank you Brian and I do agree...VA loans are underused and misunderstood.  With 5 military bases in our area, I'm always trying to get the word out!

Aug 07, 2011 07:15 AM
Gayle Rich-Boxman Fishhawk Lake Real Estate
John L Scott Market Center - Birkenfeld, OR
"Your Local Expert!" 503-739-3843

Rebekah, thanks for the good explanation. I've often wondered about that and I also think that VA loans are often not tapped into when Vets ought to have the right to know about it. The tough part is how picky they can be during inspections--a definite hurdle.

Aug 07, 2011 07:41 AM
Gary Woltal
Keller Williams Realty - Flower Mound, TX
Assoc. Broker Realtor SFR Dallas Ft. Worth

I know with other loans like FHA, there is no 4% limit on seller concessions. In strong buyer markets the buyers are almost DEMANDING this as the way to do business. It is very tough on Sellers for sure, cause they feel they shouldn't have to take up the slack of deadbeat financially weak buyers like this, but this is what strong buyers markets demand. Sad for the sellers, great deal for buyers. This on top of full commissions to agents. The Seller feels so gouged nowadays. No wonder they often DON'T WANT TO SELL.

Aug 07, 2011 07:52 AM
Jeremy Wrenn
Winslow Homes - Youngsville, NC
VP of Finance, Winslow Homes

Rebekah, not being a real estate agent or a mortgage agent I had no idea about any of this!  And I found that completely surprising that paying closing costs doesn't count towards the 4% for the VA loan.

And my first thought on why a seller would want to pay off a small line of credit for the buyer (yes, I was trying to think) was that it would be a good way to guarantee that buyer would qualify to purchase the seller's house.  So that would be quite beneficial to both parties!

Good information!

Aug 07, 2011 08:02 AM
Rebekah Radice
Imagine WOW! Digital Marketing Agency - Burbank, CA
Social Media Marketing, Coaching & Training

Gayle - Yes VA appraisals can be difficult.  It's important to know up front what might be a repair issue and counsel your client.  That's where a LOT of frustration comes in.

Gary - As of right now (I say this because they are trying to change it) FHA Loans have 6% cap on seller concessions.  Typcially we don't go anywhere near the cap when asking a seller to pay closing costs.  But I do agree with you on the seller side.  Times are tough for everyone and paying a ridiculous amount of costs could deter any seller from wanting to sell. That's really where the ethical part comes in on the lenders end.  They need to do their best to make it work for both the buyer and seller so no one is being taken advantage of.

Aug 07, 2011 10:43 AM
Cathy Criado
Criado Realty - San Antonio, TX
Making Real Estate Profitable

Super blog Rebekah!  I have a new buyer but not sure if she's VA.  Either way, I'll let you have a go at this deal.  This is  terrific information and very helpful.  Reblog & feature, material. Bookmarked.  I'd love to see one on FHA loans too :)

Aug 07, 2011 12:13 PM
Bridget "Mortgage Mama" McGee
SWBC Mortgage 410-960-2061 - Baltimore, MD
Maryland Mortgage Mama NMLS#196068

Rebekah, This is great information that is misunderstood, even by most underwriters! We have a pdf of the section explaining this from the VA lenders handbook so we can prove it to the underwriters!  I wonder how many VA buyers have been turned down or paid more than they could have for a home because their lender and realtor didn't understand the rules!

Great post!  I am re-blogging!!

Maryland Mortgage Mama

Aug 07, 2011 03:08 PM
Rebekah Radice
Imagine WOW! Digital Marketing Agency - Burbank, CA
Social Media Marketing, Coaching & Training

Thanks Cathy and great idea on FHA - I'll work on that!

That is the biggest hurdle we're seeing these days Bridget -- underwriters that don't know the guidelines.  They're all walking such a conservative line its become part of our job to argue the guidelines.  Not that it hasn't always been, it just seems to be far more pronounced these days.

Thank you so much for the reblog!!  Oh and I'm lovin' the name "mortgage mama!!" ;)

Aug 08, 2011 01:57 AM
Lester Muranaka
360 Mortgage Group, LLC - NMLS 155922 - Austin, TX
360 Mortgage Group, LLC - NMLS # 155922

Great article again Rebekah! I think its interesting that one may say the seller concessions is a good reason why sellers don't want to sell to veterans. Seller concessions are simply another negotiating factor and in todays market I think the buyer has all the power.

Aug 08, 2011 04:49 AM
Rebekah Radice
Imagine WOW! Digital Marketing Agency - Burbank, CA
Social Media Marketing, Coaching & Training

That's exactly right Lester...just another way to negotiate a deal that makes sense for both the buyer and seller.

Aug 08, 2011 05:27 AM