VA Loan Seller Assist

Veteran and wife posing for a picture with their kidsClosing costs can add up to thousands of dollars, making it harder to afford the home you want. That's why some homebuyers ask the seller to help them pay for some or all of these costs. This is called seller assistance or seller assistance.

Seller assistance is when the seller agrees to pay some of the buyer's closing costs in exchange for a higher sale price or a faster sale. This can benefit both the buyer and the seller, as the buyer can save money upfront, and the seller can sell the home faster and for more money.

However, not all loans allow seller concessions, and not all sellers are willing to offer them. In this article, we will explain how seller concessions work for VA loans, the limits and rules, and how you can use them to buy a home with a VA loan.

Key Takeaway

  • VA seller concessions are when the seller agrees to pay some or all of the buyer's closing costs on a VA loan. This can help the buyer save money upfront and buy a home with no down payment or PMI.
  • The VA allows sellers to pay all closing costs and up to 4% of the home price toward the buyer's prepaid costs, including the VA funding fee. This is in addition to any average discount points and loan-related costs that the seller can pay for the buyer.
  • The seller cannot pay more than 4% of the home price for any other costs that are not directly related to the loan, such as the buyer's debts, collections, judgments, liens, credit card balances, moving expenses, rent, mortgage, HOA dues, fees, gift cards, or cash incentives. If the seller pays more than 4%, the excess amount will be deducted from the sale price, and the loan amount will be reduced accordingly.
  • You must follow the steps in the article to use VA seller concessions to buy a home with a VA loan. Find a VA-approved lender, a VA-savvy agent, and a home that meets your needs and budget. It would be best to negotiate with the seller about how much they will pay for your closing costs and what expenses they will cover. You must also get a VA appraisal, finalize the loan, and close the home.

What is a VA Loan?

The Department of Veterans Affairs (VA) backs a VA loan, which is a home loan. The VA does not lend money directly to homebuyers but guarantees a portion of the loan if the borrower defaults. This reduces the risk for lenders and allows them to offer more favorable terms to eligible borrowers.

To qualify for a VA loan, you must be a current or former member of the U.S. military or a surviving spouse of a service member who died in the line of duty or from a service-related disability. It would be best to meet the VA and the lender's income, credit, and property requirements.

One of the main benefits of a VA loan is that you do not have to make a down payment, which means you can buy a home with no money out of pocket. Another benefit is that you do not have to pay private mortgage insurance (PMI), a monthly fee that protects the lender if you stop making payments. PMI can cost hundreds of dollars monthly, depending on the financing amount and the borrower's credit score.

A VA loan also has a lower interest rate than most conventional loans, which can save you thousands of dollars over the life of the loan. You can use a VA loan to buy, refinance, or improve a home if it meets the VA's minimum property standards.

What is VA Seller Assistance?

A VA seller concession is when the seller agrees to pay some or all of the buyer's closing costs on a VA loan. Closing costs are the fees you must pay when you finalize the loan and get the keys to the home. They can include:

  • Origination fee: This is the fee that the lender charges for processing and underwriting the loan.
  • Appraisal fee: This is the fee that the appraiser charges for inspecting and valuing the home.
  • Title insurance: This is the fee that the title company charges for ensuring that the home's title is clear and free of any liens or claims.
  • Property taxes: These are the taxes that you have to pay to the local government for owning the home.
  • Attorney fees: These are the fees that the attorney charges for conducting the closing and preparing the legal documents.

Closing costs can vary depending on the financing amount, the location, and the lender but typically range from 2% to 5% of the home price. For example, if you buy a home for $200,000, your closing costs could be anywhere from $4,000 to $10,000.

A seller concession can help reduce or eliminate these costs and make home buying easier. For instance, if the seller agrees to pay $5,000 of your closing costs, you would only have to pay the remaining $5,000 (or less, depending on the actual costs).

Seller assistance can also help you avoid paying the VA funding fee, a one-time fee that the VA charges for guaranteeing the loan. The funding fee can range from 1.4% to 3.6% of the loan cost, depending on the type of loan, the amount of the down payment, and your service status. For example, if you borrow $200,000 with no down payment and are a regular military veteran, your VA funding fee would be $4,600.

The funding fee can be paid at closing or rolled into the loan balance, but either way, it adds to the cost of the loan. However, if the seller pays the funding fee for you, you can save money and lower your monthly payment.

What Are the Limits and Rules for VA Seller Concessions?

The VA permits sellers to cover all closing costs for the veteran, including the VA funding fee. This is in addition to any average discount points and loan-related costs that the seller can pay for the buyer.

For example, if you buy a home for $200,000 with a VA loan, the seller can pay up to $8,000 of your closing costs, discount points, and loan-related costs. Discount points are fees paid to the lender to lower your interest rate, usually 1% of the mortgage amount per point. Loan-related costs are fees directly related to the loan, such as the origination fee, the appraisal fee, and the title insurance.

There is no limit on how much the seller can pay for the discount points and the loan-related costs as long as they are reasonable and customary for the market. However, the seller cannot pay more than 4% of the home price for any other costs that are not directly related to the loan, such as:

  • Prepayment of property taxes and insurance
  • Payment of the buyer's debts or collections
  • Payment of the buyer's judgments or liens
  • Payment of the buyer's credit card balances
  • Payment of the buyer's moving expenses
  • Payment of the buyer's rent or mortgage payments
  • Payment of the buyer's HOA dues or fees
  • Payment of the buyer's gift cards or cash incentives

These are considered seller concessions and cannot exceed 4% of the home price. If the seller pays more than 4%, the excess amount will be deducted from the sale price, and the loan amount will be reduced accordingly.

For example, if you buy a home for $200,000 with a VA loan and the seller pays $10,000 of your closing costs plus $2,000 of your credit card balances, the total seller concessions would be $12,000, or 6% of the home price. This exceeds the 4% limit by $4,000, so the sale price would be reduced to $196,000, and the loan amount would be reduced to $192,000.

How to Use VA Seller Assistance to Buy a Home with a VA Loan

If you want to use VA seller concessions to buy a home with a VA loan, you need to follow these steps:

  • Find a VA-approved lender and get pre-approved for a VA loan. You can use our recommended lenders for home loans to compare rates and fees from different lenders.
  • Find a VA-savvy real estate agent and look for homes that meet your needs and budget. You can use our home search tool to find homes for sale near you.
  • Make an offer on the home you want, and include a request for seller concessions in the purchase agreement. You can negotiate with the seller on how much they will pay for your closing costs and what type of costs they will cover. You can also ask the seller to pay the funding fee if you want to save more money.
  • Get a VA appraisal on the home to make sure it meets the VA's minimum property standards and is worth the agreed-upon price. The assessment will also determine the maximum loan amount you can borrow based on the home value.
  • Finalize the loan with your lender and provide any required documents and information. The lender will verify your income, assets, credit, and employment and underwrite the loan according to the VA's guidelines.
  • Close the door and get the keys. The seller will pay the agreed-upon amount of your closing costs at the closing table, and you will pay the remaining amount (if any) with your funds or a gift from a relative or a friend. You will also sign the loan documents and the deed of trust and start making monthly payments.

The seller assist is not limited to 4%!!! Read Sean Stephens's article on seller assistance.

Conclusion

In conclusion, VA Sellers Assist can help homebuyers benefit from the VA loan program. Sellers who help with closing costs and other expenses can save buyers money and make it easier to own a home. In today's competitive housing market, these cost-saving options can make a big difference in finding a home. 

For sellers, offering assistance can attract more buyers and make transactions easier. Understanding and using the VA Sellers Assist can be an intelligent strategy for buyers and sellers in today's real estate market. Use this opportunity to save money or attract more offers using VA Sellers Assist.

SOURCE:
FHA underwriting manual
USDA Manual
VA underwriting manual
Fannie Mae

Recommended Reading
Centre County: First Time Home Buyer Program
Closing Cost Assistance for Veterans 

Compare PMI & MIP: What's the Difference? 

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