News, updates, and explanations to keep you informed.
VA Loans and Seller Concessions
The VA home loan program is not the only type of government insured mortgage loan program-there are other programs available which, unlike VA loans are open to the general public. While VA loans do share similar features to other programs, it is available only to qualified veterans, some spouses and other eligible parties as described on the VA official site.
The similarities between VA loans and other programs may cause confusion in some cases where VA loan rules differ. For example, FHA loans (at the time of this writing) permit seller concessions up to six percent of the sales price or appraised value (whichever number is lowest). But do VA loans allow the same amount of seller concessions?
Not necessarily--according to VA Pamphlet 26-7, "Any seller concession or combination of concessions which exceeds four percent of the established reasonable value of the property is considered excessive, and unacceptable for VA-guaranteed loans." So VA loans do not have a seller concession limit as high (on paper) as an FHA loan, but consider what the VA loan rulebook adds in this section:
"Do not include normal discount points and payment of the buyer's closing costs in total concessions for determining whether concessions exceed the four percent limit."
For those who are new to VA loans, the idea of a seller concession might also be new. How does the Department of Veterans Affairs define seller concessions? VA Pamphlet 26-7 has the answer:
".a seller concession is 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 pay or provide."
Seller concessions can 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 set or microwave oven - payment of extra points to provide permanent interest rate buydowns - provision of escrowed funds to provide temporary interest rate buydowns - payoff of credit balances or judgments on behalf of the buyer.
To learn more about seller concessions and how they affect your loan, speak to a loan officer or contact the Department of Veterans Affairs.