It’s a normal occurrence for a VA buyer to ask the seller to provide seller concessions. This contribution can help the buyer secure the VA loan. It may also help the buyer pay for closing costs or other costs associated with buying a home.
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The maximum amount a seller can contribute is 4% of the purchase price of the home. While this sounds simple, the process is actually slightly complicated. We help you understand how it works below.
Sellers Can Pay Closing Costs
First, you should know that sellers could pay all of a VA
borrower’s closing costs. Any costs that pertain directly to the loan can be covered by the seller. The exception to this rule is the maximum amount of discount points a seller can pay. Any discount points up to 2% can be included in the closing cost and not affect the 4% maximum seller concessions. Any points beyond the 2% are included in the seller concessions, though.
Sellers Can Also Pay More Than Closing Costs
In addition to the closing costs, sellers can provide buyers with up to 4% off the purchase price. The concessions can cover things like:
- Real estate taxes
- Homeowners’ insurance
- VA funding fee
- More discount points to buy the rate down
- Payoff miscellaneous debts
Here’s how it works. Let’s say you are
buying a home for $200,000. The closing costs including 2 points are $6,000. The seller agrees to pay those closing costs.
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You also need help paying off a collection to get your loan approval and you want to buy the rate down with one more point. The seller agrees to pay the collection, pay the point, and pay your funding fee. The seller can give you as much as $8,000 on a $200,000 home. As long as these fees don’t exceed $8,000, they will be allowed.
Do Sellers Have to Provide Concessions?
Sellers are not under any obligation to pay for any of the buyer’s costs. Buyers can pay for their own closing costs and cover the other fees that come along with buying a home. Sometimes, though, it benefits the seller to work with the buyer on various concessions. In a market where there are many homes available, sellers may have to compete for the buyer.
Offering help with closing costs can make a borrower choose your home. It’s not meant as a bribe, per se, but rather a way to help a buyer purchase your home. we all know that closing costs can get costly. Any help a seller can provide may help a borrower buy the home.
The VA doesn’t require sellers to help buyers at all, though. If you are a seller and you don’t have the ability to help a buyer, it certainly isn’t required. Buyers are responsible for their own closing costs and all other loan related fees. They are also responsible for the VA funding fee at the onset of the loan.
The VA maximizes the amount a seller can help with anything outside of the standard closing costs at 4% to make sure there aren’t any ‘bribes’ to buy the home. 4% seems to be the perfect amount to help a buyer without going overboard. In fact, 4% is forgiving compared to the lower amount conventional loans allow.
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