The VA funding fee is designed to sustain the VA loan program, but it often raises questions about who can pay it. One of the most common is whether the seller can cover this cost for the buyer.
The answer: yes, under VA guidelines, sellers may pay the funding fee as part of allowable concessions, provided their total contributions do not exceed 4% of the home’s purchase price.
This flexibility can significantly reduce upfront costs for Veterans. Knowing the rules around seller-paid expenses helps buyers negotiate effectively and keep their VA loan closing affordable.
Key Takeaways
- The VA funding fee supports the program but can add thousands in upfront loan costs for buyers.
- Sellers may cover the fee through concessions, but total contributions cannot exceed 4% of the purchase price.
- Negotiating seller-paid credits can significantly reduce or remove the out-of-pocket funding fee burden.
- Disabled Veterans with service-connected disabilities are exempt from paying the VA funding fee.
- Lenders ensure seller concessions are structured correctly to meet VA loan program compliance rules.
- Strategic negotiations with experienced VA lenders and agents help maximize allowable seller contributions.
Can the Seller Pay the VA Funding Fee?
The VA allows the seller to pay your funding fee at closing. When the seller does, the payment is treated as a “seller concession,” which is limited to 4% of the purchase price. If the funding fee plus any other concessions exceed 4%, the excess must be reduced or paid by you.
- Permitted but capped: Seller-paid funding fees are allowed as long as total concessions stay within VA’s 4% cap for concessions.
- Separate from closing costs: The cap applies to concessions (like prepaids and funding fee), not ordinary closing costs a seller might cover.
- Financing remains an option: You can also finance the funding fee into your loan or combine approaches to fit the cap.
Explore VA Funding Fee Resources
These articles cover costs, exemptions, refunds, deductions, and smart ways to handle the VA funding fee at closing.
- VA Funding Fee: Complete Guide — Who pays, how it’s calculated, key examples.
- Disabled Veterans: VA Funding Fee Exemption — Eligibility by rating and required documents.
- VA Funding Fee Refund: How It Works — When refunds apply and how to request.
- Surviving Spouses: Funding Fee Exemptions — Qualifying cases, proof, and application steps.
- Is the VA Funding Fee Tax-Deductible? — When deductible and where it appears.
- Can the Seller Pay the VA Funding Fee? — Concession rules, 4% cap, negotiation tips.
- Finance the Funding Fee or Pay at Closing? — Compare total cost and cash flow.
- Seller Paying the Funding Fee on a Purchase — Contract wording, cap interactions, documentation.
How the 4% Seller Concession Cap Works
The VA’s 4% cap is straightforward once you separate “concessions” from “customary closing costs.” Concessions include items that benefit the buyer beyond typical fees: prepaid taxes and insurance, discount points, and a seller-paid funding fee. The cap is calculated on price, not loan amount, and must be respected at final figures.
- What consumes the cap: A seller-paid funding fee, prepaid escrows for taxes and insurance, and seller-paid discount points all count toward the 4% limit and must fit together without exceeding the allowable space.
- What does not consume the cap: Title insurance, recording, and other market-customary settlement charges a seller covers are excluded from the cap, provided amounts are customary, reasonable, and properly itemized on closing documents.
- Why it matters practically: Big buydowns can crowd out room for a seller-paid funding fee. If concessions are near the limit, you may finance the fee or shift credits to ordinary closing costs instead.
- Where to confirm rules: VA’s official pages outline fees and closing-cost treatment. Use the funding fee and closing costs guidance for shared understanding across all parties.
What Costs Don’t Count Toward the 4% Cap?
Many routine fees the seller pays are outside the concession cap. Treating them correctly preserves limited space for the funding fee and prevents avoidable contract rewrites. Underwriters look for “customary and reasonable” amounts in your region, not arbitrary totals that stretch local norms or trigger line-item questions.
- Customary closing charges: Seller-paid owner’s title policies, appraisal re-inspections caused by repairs, recording, and typical settlement fees do not hit the cap when they reflect local norms verified by the title company.
- Repair obligations: Items required by appraisal or negotiated from inspections should be recorded as repairs, not concessions. Invoices or repair escrows keep them distinct from the 4% limit for concession tracking purposes.
- Credits vs. classifications: A single “big credit” is tempting, but splitting credits into customary costs and true concessions protects the cap and minimizes downstream underwriting recalculations or disclosure redraws.
- Paper trail discipline: Clear addenda, invoices, and settlement statements reduce friction. Ambiguity around classification is the number-one reason files bounce between processing and closing for last-minute corrections.
Who Can Pay What? At-a-Glance Matrix
This matrix helps you place each item in the correct bucket so your offer remains compliant, supportable, and easy to close without eleventh-hour revisions or appraisal anxiety.
| Fee / Item | Buyer Can Pay | Seller Can Pay | Lender Can Pay | Counts Toward 4% Cap? |
|---|---|---|---|---|
| VA Funding Fee | Yes | Yes (as concession) | Yes (via credit) | Yes (if not paid by buyer) |
| Prepaid Taxes & Insurance | Yes | Yes (as concession) | Yes | Yes |
| Discount Points / Rate Buydown | Yes | Yes (as concession) | Yes | Yes |
| Customary Closing Costs (title, recording, settlement) | Yes | Yes | Yes | No |
| Appraisal-Required Repairs | Yes | Yes (documented) | Possibly | No (treated as repairs) |
Should You Ask the Seller to Pay the Fee—or Finance It?
Both paths are common. The better choice depends on concessions availability, appraisal headroom, and your liquidity preferences. If you’re stretching cash for inspections, reserves, or moving costs, financing or reallocating credits may be smarter than forcing a funding-fee concession through a strained cap.
- Liquidity versus payment: A seller-paid fee reduces your cash at closing, but so does financing. Compare payment changes, concession availability, and appraisal pressure before deciding where to “spend” your limited negotiating capital.
- Buyer’s market advantage: When sellers are flexible, directing credits to the funding fee can simplify cash planning while leaving room for a modest buydown that reduces long-term monthly cost responsibly.
- Seller’s market reality: In competitive environments, demanding a large concession can weaken your offer. Financing the fee and minimizing credits can keep your bid cleaner and appraisal conversations calmer.
- Approval and pricing edges: If your debt-to-income ratio is tight, a slightly lower payment from paying the fee yourself may improve approval margins or lock pricing relative to a financed fee structure.
Offer Language the Underwriter Will Love
Precise drafting prevents delays. Separate “customary closing costs” from “seller concessions,” specify who pays the funding fee, and include a contingency if numbers later threaten the cap. Underwriters prioritize clarity that maps directly to Closing Disclosure line items without interpretive heroics.
- Direct statement: “Seller to pay Veteran’s VA funding fee at closing as a seller concession, subject to VA’s 4% concession limit; ordinary buyer closing costs remain separate from this cap.”
- Allocation clarity: “Seller to pay customary buyer closing costs, including owner’s title and recording, which are not counted toward the VA concession limit; concessions may be applied to prepaids or discount points as allowed.”
- Cap-excess fallback: “If total concessions exceed 4% at final figures, amounts will be reallocated to allowable closing costs or paid by buyer, with no change to other negotiated terms unless mutually agreed.”
- Repair distinction: “Any appraisal-required repairs will be completed by seller and documented with invoices or escrow, and shall not be treated as seller concessions for VA cap purposes at closing.”
Exemptions, Down Payment Tiers, and Subsequent Use
Some Veterans are exempt from the funding fee. Others can reduce the fee with a down payment or face a different tier for subsequent-use loans. Confirm status early so your contract doesn’t promise a concession for a fee that isn’t owed or is smaller than assumed.
- Exemption verification: Qualifying service-connected disability status typically waives the fee completely. Verify before writing the offer so concessions aren’t allocated to a charge that disappears at underwriting.
- Tier impacts strategy: Even a modest down payment can drop the fee rate. If concessions are tight, a small down payment may free space under the cap to fund useful prepaid escrows or points.
- Subsequent-use awareness: Repeat VA usage sometimes changes the fee rate. Know your tier, then decide whether to request a seller-paid fee, finance it, or reallocate credits to a carefully targeted rate buydown.
- Official reference point: Share the VA home loan overview with your agent and title so everyone aligns on rules before drafting sensitive concession language.
Appraisal, Price Bumps, and Loan Limits
Every dollar of credit must be supported by value. If you lift contract price to “cover” concessions, the property still must appraise accordingly. In thin-comp markets, preserving cap room by financing the fee can keep price intact and reduce valuation risk.
- Value support first: Raising price to offset a concession is harmless only if the appraisal supports the higher contract amount; otherwise, you may renegotiate or restructure cash, credits, or financing.
- Conforming limit awareness: When price or financed balances approach thresholds, check FHFA limits using the loan-limit map to avoid accidental product shifts late in the process.
- Timing and re-disclosures: Appraisal-driven changes can trigger disclosure redraws and lock extensions. Drafting lean, precise concession language up front reduces moving parts near clear-to-close.
- Repair logistics: Appraisal-required repairs belong in their own lane with invoices or a short escrow. Keeping them separate protects concession capacity and simplifies underwriter sign-off.
4% Cap Scenarios (Illustrative)
These examples show how quickly concessions can consume your 4% limit once you combine prepaids, discount points, and a seller-paid funding fee. Your lender will model precise figures; use these to anticipate tradeoffs before finalizing offer language.
| Price (P) | Max Concessions (4% × P) | Other Concessions | Funding Fee (Example) | Result |
|---|---|---|---|---|
| $400,000 | $16,000 | $3,500 prepaids | $8,400 | Room remains for full fee; consider allocating leftover to a light buydown. |
| $325,000 | $13,000 | $7,500 buydown | $6,000 | Cap exceeded by $500; reallocate $500 to customary costs or finance a portion. |
| $275,000 | $11,000 | $2,000 prepaids | $9,500 | Cap exceeded by $500; reduce buydown or finance the excess for compliance. |
Cash-to-Close and Payment Tradeoffs (Quick View)
Here’s a high-level comparison of common structures. The goal is not to dictate a choice, but to make the cost-benefit tradeoff visible so you can right-size concessions without stressing value or timelines.
| Structure | Cash to Close | Monthly Payment | Concession Pressure | Best Use Case |
|---|---|---|---|---|
| Seller Pays Funding Fee | Lower (uses cap) | Lower vs. financing | Higher (consumes cap) | Buyer’s market with ample appraisal room and flexible seller credits |
| Finance Funding Fee | Lower (no cap usage) | Slightly higher | Lower (preserves cap) | Competitive market, thin appraisal support, or buyer prioritizes liquidity now |
| Buyer Pays Upfront | Higher by fee | Lowest | None (cap preserved) | Long time horizon, tight DTI margins, or desire to pair cash with points |
Putting It Together: Practical, Compliant Ways to Structure Your Offer
Start with your priorities—cash today, lowest payment, or maximum simplicity—and then allocate credits accordingly. Share official references with your agent and title so concession language matches VA expectations and your Closing Disclosure aligns with exactly what underwriting approved.
- Decide your priority first: If liquidity matters most, consider financing the fee and reserving concessions for prepaids or a small buydown that improves payment without crowding the 4% cap unnecessarily.
- Use spare cap intentionally: When concessions have room, a seller-paid funding fee plus a modest buydown can produce comfortable cash-to-close and meaningful monthly relief without flirting with the cap.
- Avoid appraisal strain: Resist price bumps purely to “make the math work.” When comps are thin, hold price steady and pivot to financed fee or reallocated credits to protect value support and timeline.
- Align the team early: Give your lender, agent, and title the VA fee guidance so everyone classifies items the same way and avoids late-stage disclosure changes and lock extensions.
Veteran Resources
Your Next Steps…
Confirm whether you are exempt today, likely exempt before closing, or not exempt. Share your COE, rating decision, DIC documentation, or Purple Heart proof immediately, and be ready to complete VA Form 26-8937 if requested.
If exemption is pending, include flexible contract language that allows reallocation without price changes. Keep concessions within VA’s four percent cap even when the fee is waived, and separate “customary costs” from “concessions” on all paperwork.
If your award later shows an effective date before closing, contact your servicer and regional loan center promptly to start the refund review and receive written confirmation of the outcome.
Frequently Asked Questions
Can the seller pay my entire VA funding fee?
Yes, if the 4% seller concession cap isn’t exceeded by the funding fee plus other concessions. If concessions would exceed 4%, the excess must be reduced or paid by you.
Do seller-paid normal closing costs count toward the 4% cap?
No. Ordinary closing costs (like title and recording) paid by the seller don’t count toward the VA’s 4% concession cap. Keep them listed separately from concessions on your contract.
What items do count toward the 4% concession limit?
Prepaid taxes and insurance, the VA funding fee when paid by the seller, and discount points used to buy down your rate count as concessions and must fit under the 4% cap.
Is financing the funding fee better than asking the seller to pay?
It depends on appraisal room and market leverage. Financing preserves cash but slightly raises payment. Seller-paid credits help when appraisals support price and the market favors buyers.
Can the lender pay my funding fee?
Yes—lender credits can cover eligible costs, including the funding fee, but they must fit within VA and TRID rules and may increase your interest rate versus no-credit pricing.
What if I’m exempt from the funding fee?
If you’re exempt due to a qualifying service-connected disability or other VA-recognized status, no funding fee is due. Ensure exemption is verified before drafting your offer language.
Will raising price to “cover” concessions cause appraisal problems?
It can. The home must still appraise at or above the contract price. If the appraisal comes in low, revisit credits, pricing, or financing the funding fee to keep the deal aligned.
Are discount points a good use of seller concessions?
Often, yes. A targeted buydown can lower monthly payments long-term. But discount points count toward the 4% cap, so balance them against prepaid items and the funding fee.
Can seller concessions pay off my credit cards?
VA allows certain consumer debt payoff as a concession, but it counts toward the 4% cap and must be clearly documented. Coordinate early with your lender and title company.
Where can I see official rules on concessions and the funding fee?
Review the VA’s funding fee and closing costs page and the VA Lenders Handbook. Your loan officer can apply those rules to your exact contract, county, and loan structure.
