What is the maximum Seller's Concession allowed with a VA mortgage?
The maximum seller's concession amount allowed on an FHA loan or on a V.A. loan is up to 6% of the total purchase price of the home.
Since the VA does not require a down payment there can be what is commonly know as a "VA no-no" where the Vet. does not have to pay anything in order to purchase the home. ( Except in most cases the appraisal and home inspection charges, which can be reimbursed if availible funds permit )
In many cases the 6% allowed amount is greater then the total of the closing costs. They can be used towards establishing an impound account as well as paying the initial taxes and insurance for the Vet., paying them back for the appraisal as well as paying the VA funding fee, the fee however is most commonly financed into the loan.
The process of the seller paying this is commonly described as paying all recurring and non-recurring closing costs.
The VA loan is an excellent opportunity for our veterans to take advantage of loan opportunities not available elsewhere. For example, closing costs are limited, there's 100% financing, no mortgage insurance, and the VA will help with payments in times of temporary financial emergencies. The veteran isn't allowed to pay several of the normal mortgage related fees, including pest and dry rot inspections, so be aware of what's being charged!
Seller concessionscannot exceed 4% of the sale price, but only specific items are covered. Seller's can pay the pre-paid items (insurances, taxes), the VA funding fee which is normally financed into the loan amount, collections and judgments, and charges for temporary buydowns...not discount points.
To answer your question, we need to define SELLER CONCESSION- according to VA guidelines, the term seller concession does NOT apply to normal closing costs- it is anything other than normal closing costs such as any inducement to puchase- in most cases, we use this to have seller pay prepaid items such as hazard insurance, property tax escrows , etc.. SELLER CONCESSIONS have a 4% maximum( 4% of sales price).
NO LIMIT is imposed on closing costs, only that they are normal costs that are paid in the marketand that they are nonrecurring. This includes origination fees, discount points, appraisal, etc.
In other words, if the escrowed items do not exceed 4% of the sales price, then the seller is allowed to pay them as well as all other normal closing costs on a purchase transaction. SInce VA can be a 100% loan, the buyer could possibly have no cash to close requirement.
Be sure to check with your lender/investor as I have experienced a couple of cases in which underwriter interpreted the 4% cap to apply to closing costs, even though VA guide lines specify that it does NOT.
This is my second answer- I am concerned to see several conflicting answers on the same topic. I am reading as I type the VA guidelines- VA Pamphlet 26-7 Revised. It states" Seller cocessions include, but are not limited to, the following: Payment of the buyer's VA funding fee, prepayment of the buyer's property taxes and insurance, gifts such as a television or microwave oven, payment of extra points to provide permanent interest rate buydowns, and payoff of credit balances or judgements on behalf of the buyer".
The guidelines go on to state that buyers closing costs are not seller concessions. Seller cocessions have a cap of 4% of the sales price.
Closing costs paid by seller or others have no cap as stated in guidelines"VA regulations limit charges made against or paid by the borrower. They do not limit the payment of fees and charges and charges by other parties."
All uderscores in this message are by me.