Purchasing a home is an exciting time, but it also involves navigating a lot of paperwork, fees, and costs associated with the transaction. This is especially true when utilizing a VA loan, which comes with specific guidelines and fees. As a veteran or eligible military member, being aware of the seller costs associated with VA loans can help you make informed decisions during the home buying process.
What Are Seller Costs on VA Loans?
Seller costs refer to specific fees and expenses the seller is required to pay when closing on a home sale. With a VA loan the seller cannot pay more than 4% of the total loan amount towards the buyer’s closing costs. However there are certain mandatory seller costs the seller must cover on a VA purchase. These include
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Real estate agent commissions – Both the buyer’s and seller’s agent commissions must be paid by the seller. This is usually a percentage of the home’s sale price.
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Brokerage fees – Any fees paid to a real estate brokerage firm representing the agents.
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Termite inspection report – If required the seller must cover the cost of the termite inspection.
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Well/septic inspection report – If required, the seller pays for any well and septic system inspections.
These are the main seller costs that are mandatory with a VA purchase loan. The seller cannot require the buyer to pay these fees Outside of these required seller costs, the buyer and seller can negotiate who covers any additional closing fees
VA Loan Limits on Seller Costs
As mentioned previously, the VA places a 4% limit on the total loan amount that a seller can pay towards a buyer’s closing costs with a VA loan. For example, if you purchase a $300,000 home with a VA loan, the seller can only contribute up to $12,000 (4% of $300,000) towards your closing costs and prepaids.
The seller concessions limit applies specifically to fees above and beyond the mandatory seller costs like commissions and inspections. Some common closing costs sellers may agree to cover under this limit include:
- VA funding fee
- Prepaid taxes and insurance
- Title fees
- Recording fees
- Loan origination or application fees
It’s important to note that this 4% limit only applies to seller contributions above the mandatory fees outlined earlier. For instance, if the real estate commission equals 3% of the total loan amount, the seller can still contribute up to another 1% towards the buyer’s other closing costs like title insurance or recording fees.
VA Loan Buyer Costs
While the seller covers their defined fees, the buyer will be responsible for other costs at closing with a VA loan. Some common VA buyer costs include:
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VA funding fee – This is a fee charged by the VA to help fund the loan program. It equals a percentage of the loan amount and varies based on factors like down payment and loan type.
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Appraisal fee – The buyer pays for the VA appraisal, usually $425-$875.
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Credit report fee – The cost for the lender to pull the buyer’s credit report.
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Title insurance premiums – The cost for lender and owner’s title insurance policies.
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Recording fees – The fee to record the deed and mortgage documents.
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Prepaid interest – Interest for the first partial month before regular payments begin.
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Hazard insurance premium – Required insurance paid at closing and held in escrow.
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Origination or application fee – Upfront fee charged by the lender, capped at 1% of the loan amount for VA loans.
Any seller credits the buyer negotiates will help reduce these costs. But the buyer should be prepared to pay any remaining fees not covered by the seller concessions.
Tips for Understanding VA Seller Costs
When buying a home with a VA loan, keep these tips in mind to better understand mandatory seller costs:
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Ask your lender for a detailed fee estimate – This will outline both buyer and seller closing fees so you know what to expect.
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Review the purchase contract carefully – The contract should specify who pays which fees on the property sale.
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Negotiate seller credits if possible – Seller contributions can help reduce your out-of-pocket costs, within VA limits.
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Inquire about discounts – Some lenders offer discounts on VA loans for eligible borrowers that could lower your fees.
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Understand your VA funding fee – Know if you qualify for any reductions or waivers to lower this cost.
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Avoid rolling fees into the loan – This increases interest costs over the long run. Save up to pay fees upfront instead.
Overall, being aware of mandatory seller costs, maximum contributions, and common buyer fees will empower you to make wise financial decisions when purchasing a home with a VA loan. Connect with a knowledgeable VA lender to get pre-qualified and better understand the closing costs involved before you start shopping for your dream home.
What Are VA Loan Closing Costs?
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Do Sellers Have to Pay for Costs on a VA Loan?
FAQ
What fees does a seller pay on a VA loan?
Do sellers pay closing costs in VA?
What is the downside to VA loan for seller?
What are the seller contributions on a VA loan?
Can a seller pay a VA funding fee?
Your seller can pay costs equal to 4% of your sales price. This is called a “seller concession” and can include the VA funding fee. Roll them into your loan. VA funding fees are automatically added to your loan balance on a purchase loan unless you decide to pay them out of pocket.
How do I pay for my VA Loan Closing costs?
The different ways you can pay for your VA loan closing costs include: Pay the closing costs out-of-pocket and in full at closing. Ask the home seller to pay for the closing costs. The seller can agree to pay a portion of the buyer’s closing costs, up to 4 percent of the mortgage, including the funding fee or origination fee.
Do Va borrowers have to pay closing costs?
However, VA borrowers will have to pay closing costs, including the VA funding fee. VA closing costs can be anywhere from 1 to 5 percent of the total loan amount, depending on the cost of the home. VA closing costs can be paid out-of-pocket, covered by seller concessions and lender credits, or financed into the total loan amount.
Does a VA funding fee apply to a home loan?
The VA funding fee is the only closing cost that can be rolled into your VA home loan. To limit the cash needed to close, some borrowers will offer more for their home and ask the seller to use these additional funds to cover other closing costs.