VA Seller Concessions

From groceries to gym memberships, people are conditioned to pay the list price on things they want. That’s not the case with buying a house, especially if you’re using a VA loan to purchase it.

Not only is the asking price negotiable, but so are the closing costs and other items. Veterans can save thousands of dollars if the seller makes concessions.

“Most buyers don’t understand that negotiating for seller concessions is even an option. But they can oftentimes make the difference between buyers qualifying for their loan or not,” said Doug Nunnery, a broker with Round Table Realty in St. Johns, FL.

What’s in it for sellers?

Sweetening the deal makes it easier to sell the house, which can be tricky in a cooling market. Home sales fell 19% to 4.09 million in 2023, the lowest level in almost 30 years and mortgage interest rates soared.

That has tightened the market, which is to the buyer’s advantage. Having a VA loan is also an advantage. Closing the deal, however, may depend on the concessions the seller will make. They don’t have to make any concessions, but it’s worth asking.

Understanding Seller Concessions

A VA loan allows sellers to pay 4% of the costs associated with the loan. What qualifies as 4% of the loan is negotiable and goes well beyond the typical closing costs associated with the sale of the home.

Anyone who’s bought a house knows there can be a startling difference between what you agree to pay and how much you’ll really need before they hand you the keys to the front door. The startles come from things like loan origination fees, document stamps, prepaid interest, lead-based paint inspections, attorney fees, discount points and title insurance.

Collectively, they are known as closing costs. But they usually blur into a pile of gobbledygook to the weary eyes of buyers.

By any name, they can add up to 5% to the price. So, a $300,000 house could actually cost you $315,000. That $15,000 in closing costs would buy a decent used car for your new driveway.

To lessen the sticker shock, sellers often agree to cover a percentage of the closing costs. That number is based on the purchase price or the house’s appraised value – whichever is less.

Conventional loans allow sellers to pay up to 9% of the total price, though buyers must put down at least 25%. If the down payment is less than 10%, the seller can kick in 3% in concessions.

FHA and USDA loans allow seller concessions of up to 6% of the purchase price, while VA loans cap seller concessions at 4%.

How Seller Concessions Work for VA Loans

Unlike most conventional loans, VA loans don’t require a down payment or mortgage insurance. They do have a funding fee, however.

That amount depends on the cost of the house and is a percentage of your down payment. If it’s 10% or more, the VA funding fee is 1.25% of the house’s sale price. If you put down between 5% and 9%, the fee goes up to 1.5% and if the down payment is less than 5%, you’re stuck with a fee of 2.15%.

The VA allows sellers to contribute to the funding fee, as well as other closing costs. But sellers should not overlook an important part.

Closing costs are not considered a “seller concession.” The seller can pay that gobbledygook of fees, but they won’t count a penny toward the 4% concession limit.

What does count is broadly defined as “anything of value added to the transaction by the builder or seller for which the buyer pays nothing additional and which the seller is not customarily expected or required to provide.”

Among the examples:

• Gifts such as a television set or microwave oven.
• Prepayment of the buyer’s property taxes and insurance.
• Payoff of credit card balances or judgments on behalf of the buyer.

For veterans, that opens a wide array of items that can be included in negotiating the sale price of the house.

» Learn More: Types of VA Home Loans

Benefits for Buyers

Getting seller concessions means more money in your pocket. They make purchasing a home more affordable and the closing a lot less stressful on your checkbook.

Say you agree on a $300,000 sale price in a weak housing market. The seller probably hasn’t had many offers, so they will be open to paying some closing costs and making other concessions to seal the deal.

Every dollar they contribute to gobbledygook fees is a dollar you won’t have to spend. But you can also ask the seller to pay up to that 4% limit on concessions – $12,000 in this case – for other concessions.

That could be, for example, an outstanding balance of $10,000 on an auto loan. A $10,000 concession would free up hundreds of dollars a month. You could put that toward anything from furniture to a facelift to a trip to Hawaii.

Consideration for Sellers

A key point in all this is that sellers are not required to make any concessions. Every dollar they contribute to the gobbledygook of fees is a dollar they won’t get to spend.

So, unless the seller just likes to give away money, he or she will not be inclined to make any concessions unless they feel it must be done to close the deal.

There are tax considerations for both sides, though they are relatively minor. If you buy a mortgage point to lower your interest rate, you may be able to deduct that expense. You can’t do that if the seller pays for the points.

You can also deduct the local property tax payment if you pay it, but not if the seller takes care of it.

Negotiating Seller Concessions

The best advice in any negotiation is the Boy Scout motto – “Be Prepared.”

Market trends are key. If there are more houses available than buyers, sellers will be more motivated to engage in concession talk.

Conversely, if it’s a hot market with limited supply, sellers have more leverage. In either case, have a plan. Know your limits and maintain perspective.

Don’t fall in love with a house and make financial promises you’ll regret. Don’t storm away from a decent deal because you didn’t get a concession you can live without.

The Impact of VA Seller Concessions on Homeownership

Seller concessions come down to negotiations. And in many negotiations, there is a winner and a loser.

But concessions have saved buyers billions of dollars over the years. They’ve also helped sell countless homes.

Just remember, real estate negotiations can get complicated. It usually pays to consult a mortgage professional to help you bid on a house.

“There are creative ways to incentivize sellers to offer concessions,” Nunnery said. “So, buyers should lean on their realtor and VA loan officer to work together to come up with the right plan.”

If they do, both the buyer and seller can walk away feeling like a winner.