VA LOAN CAPTAIN BLOG & Learning Center

Seller Concession Limits

By: Grant Moon 10/21/14 10:48 am

VA loans don’t require a down payment and while there are closing costs on the loan, the veteran isn’t allowed to pay for certain ones. For instance, a lender may have a loan processing fee or an underwriting fee that adds up to $800 but the veteran can’t be charged for them. Someone has to pay them and many times it’s the seller. The seller can pay not only the fees the veteran isn’t allowed to pay but the ones the veteran can pay as well.

The veteran is allowed to pay for an appraisal, credit report, title insurance, origination fees, recording and survey charges. That can add up to quite a bit but again the seller can come to the rescue. Up to a point, anyway. So-called “seller concessions” are limited to 4 percent of the value of the home. If the sales price is $200,000 the seller is allowed to pay up to 4 percent of that amount, or $8,000. That’s usually more than enough to take care of the veteran’s closing costs but not always. If closing costs are more than that, if the seller does pay for the overage it may affect the value of the property.

Look at it this way. If a home sells for $200,000 but the seller pays for $20,000 in costs, what is the home really worth? If it took a $20,000 concession to sell the home, the home isn’t worth the full $200,000 in an open market. This is an exaggeration but makes the point. When concessions exceed the 4 percent level, the appraised value may fall.

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