If 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.
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