If you are a veteran with VA loan eligibility, you may be lucky enough to get help with your closing costs too. The VA limits the closing costs that buyers can pay. This means that someone has to take care of them – either the seller or the lender. Typically, it’s the seller that jumps in and helps out, though. Sellers realize that they are benefiting by selling their home. As long as the seller gets the price he wanted for the home, he may be willing to get those pesky closing costs paid.
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But just how much can a seller pay? We help you understand below.
Covering the Closing Costs
In general, sellers can pay all of a veteran’s closing costs as long as the costs charged are usual and customary for the area. This doesn’t mean the seller has to pay all of the closing costs, though. The seller can choose to pay only those costs the veteran cannot pay.
There is one exception to the rule, though. If you have discount points charged on your loan, the seller can only pay 2 points or 2%. If the seller pays any more than two points, then it’s considered a seller’s concession, which we’ll discuss in detail below.
What Fees Can Veterans Not Pay?
You should be familiar with the list of fees that you can’t pay if you are a veteran. They include:
- Attorney fees (lender charged)
- Broker fees or commissions
- Flood certification fees
- Any miscellaneous appraisal fees, such as Reconsideration of Value or other appraisal fees that are out of the norm
There is a way that you can pay these fees, though. If a seller insists on charging these fees and the seller won’t’ help, you can ask the lender to lump the fees into one origination fee. Now, if the lender charges the origination fee, they cannot itemize your charges. In other words, they can’t charge the origination fee and list out other fees on your Loan Estimate or Closing Disclosure. You can pay one or the other.
If the lender won’t oblige, there is one more way to get help.
Lender Credits can Help
If you want to buy a home but can’t get the closing cost issue figured out, you can ask the lender for lender-paid closing costs. This will cost you a little more in the end, but it’s a way to get you into the home you want.
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When the lender covers your closing costs, they usually increase your interest rate by 0.5%. This means you’ll pay 0.5% more for your mortgage for the life of the loan. This can add up if you keep the loan for 30 years, so keep this in mind. But, it’s a way to get around the VA rules regarding closing costs.
Seller Concessions are Something Different
In addition to the closing costs the seller can pay for you, they can also give you seller concessions. This is separate from your closing costs. Seller concessions are money the seller concedes to help you buy the home.
The seller may offer money to help you cover other costs. They may also offer help to cover your real estate taxes, prepaid interest, homeowner’s insurance, or more discount points (which we discussed above).
The VA limits how much the seller can help you with concessions though. Unlike closing costs where there isn’t a limit, the seller can only provide up to 4% of the purchase price in concessions. If the seller provides more than 4%, it may be considered an inducement to purchase.
The VA does help buyers out by limiting the closing costs they may pay, but it can hurt the buyer in the end. If you don’t have a willing seller, it may be hard to get through the closing cost requirements. You may have to shop around for lenders that will work with you or find a seller that doesn’t mind helping a veteran out with their closing costs.
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