How Much Can Sellers Contribute to VA Loans? Understanding Maximum Seller Concessions

Purchasing a home is an exciting milestone, but it also comes with significant expenses. From down payments to closing costs, buyers take on major financial responsibilities when signing their names to mortgage documents. This is especially true for buyers using VA loans, which require no down payment but charge a funding fee.

Luckily, VA homebuying rules allow sellers to help out. Through seller concessions, veterans and military families can reduce their out-of-pocket costs when buying a house with a VA loan.

What Are Seller Concessions for VA Loans?

A seller concession is anything of value that the seller provides to the buyer outside of the purchase price The seller is not customarily required to pay these fees

Seller concessions offset expenses that the buyer would normally cover at closing Common concessions include

• Paying for the buyer’s VA funding fee
• Prepaying the buyer’s property taxes and insurance
• Covering origination fees
• Paying for the appraisal
• Covering title insurance
• Paying attorney fees

Seller concessions do not include points or the buyer’s standard closing costs. It is customary for sellers to pay the buyer’s closing costs related to obtaining the mortgage.

For VA loans, seller concessions cannot exceed 4% of the purchase price. This limit allows veterans and military families to further reduce their cash needed to close.

Why Do Sellers Offer VA Buyers Concessions?

Sellers make concessions to entice buyers and give their offers a competitive edge. This is especially helpful in buyer’s markets where demand is low.

By offering to pay closing fees, a seller makes their home more appealing than others for sale in the area. This gives them leverage during negotiations.

Concessions also allow sellers to raise their net proceeds. Rather than lower the list price, they can maintain or even inflate the price and essentially discount the sales price with concessions.

Calculating the 4% VA Seller Concession Limit

It’s important for buyers to understand how the 4% limit works so they can maximize concessions when negotiating.

First, the 4% is based on the sales price, not the loan amount. For example:

• Sale Price: $300,000
• 4% of Sale Price: $12,000

So the maximum concessions the seller could provide is $12,000 in this scenario. The sales price drives the limit.

Now consider this example:

• Sale Price: $300,000
• Loan Amount: $295,000
• 4% of Sale Price: $12,000

While the loan amount is $295,000, the maximum concessions are still calculated based on the higher sales price. VA buyers should negotiate up to 4% of the purchase price in concessions from the seller.

Unique Scenarios for Seller Concessions

Beyond the 4% limit, there are some unique cases where sellers provide their own kind of help:

Seller-paid closing costs – It is customary for sellers to pay the buyer’s closing costs associated with obtaining the mortgage. This includes title fees, recording fees, credit reports, etc. These are not considered concessions, so they do not count against the 4% cap.

Points – Sellers can pay discount points in addition to concessions. If the local market dictates a rate of 6% with two discount points, it would be customary for the seller to pay those points. This is not a concession.

Down payment assistance – Some non-profit organizations provide down payment assistance in the form of grants or secondary loans. These funds are considered concessions and are subject to the 4% limit.

Seller-funded temporary buydowns – In some markets, sellers provide funds to temporarily buydown interest rates for the first few years. These buydowns are concessions capped at 4% of the sales price.

Payment of non-realty items – If a seller pays off a buyer’s non-realty debt, like credit cards or auto loans, at closing, that payment counts as a concession. Veterans should be sure to account for these fees in the 4% limit.

How to Negotiate the Maximum VA Seller Concessions

The key to maximizing concessions is negotiation. Don’t be afraid to ask for contributions from the seller – the worst they can do is say no.

Here are some tips for buyers on negotiating the most concessions:

• Make an aggressive first offer – Ask for the maximum 4% of the sales price plus closing costs paid. The seller will likely counter, but you’ve set the tone.

• Bow, don’t break – Be willing to concede, but only slightly. If they refuse 4%, ask them to meet in the middle at 2%.

• Highlight benefits – Note how concessions will help the deal close faster and make their home more competitive.

• Bring backup offers – Having other offers on the table boosts your leverage tremendously during negotiations.

• Use a buyer’s agent – Skilled real estate agents negotiate concessions every day. Their expertise is invaluable.

• Be ready to walk – Don’t take a bad deal. Be ready to walk away if you can’t get reasonable concessions.

With the right approach, buyers can offset a significant portion of their closing costs using the VA’s seller concession rule. Just remember that concessions are capped at 4% of the sales price.