What Counts, What Does Not, and How to Calculate It
VA 4% Seller Concession Rule in 2026
VA Funding Fee and Closing Costs
VA Circular 26-24-14 and Change 1
VA Temporary Buydown Guidance
The VA 4 percent rule limits seller concessions to 4 percent of the home's reasonable value shown on the Notice of Value. Seller-paid closing costs have no VA percentage cap but can only cover actual eligible costs. Concessions include seller-paid funding fee, prepaid insurance, temporary buydowns, and debt payoff. Buyer-broker fees paid by the seller are not concessions.
Next step:
Compare Concession Structures With a Lender
Subsequent
Exempt
$8,600
The 4% Base
- Reasonable value, not loan amount: The 4 percent cap is calculated from the home's reasonable value on the VA Notice of Value, not the contract price or loan amount. VA.gov Closing Costs
- Two separate buckets: Seller-paid closing costs have no VA percentage cap but can only cover actual eligible costs. Concessions are capped separately at 4 percent of reasonable value. VA.gov Closing Costs
- A ceiling, not an entitlement: The 4 percent is the maximum the VA allows, not an amount the buyer automatically receives. The seller decides what to offer. VA.gov Closing Costs
What Counts Toward the 4%
- Seller-paid funding fee: When the seller pays the VA funding fee, it is classified as a concession and counts against the 4 percent cap. VA.gov Closing Costs
- Prepaid insurance and debt payoff: VA.gov lists prepayment of the buyer's hazard insurance and debt payoff as concessions. VA.gov Closing Costs
- Temporary buydowns: A seller-funded temporary buydown is considered a seller concession and is subject to the 4 percent limit. VA Temporary Buydowns
What Does Not Count
- Standard closing costs: Appraisal, title, recording, origination fees, and normal discount points are not concessions and have no VA percentage cap when paid by the seller. VA.gov Closing Costs
- Buyer-broker fees: The seller's payment of buyer-broker compensation is not treated as a seller concession (Circular 26-24-14 and Change 1). VA Circular 26-24-14
- Real estate commissions: Commission and fees for real estate professionals are negotiable closing costs, not concessions. VA.gov Closing Costs
How to Calculate
- Start with the NOV: Multiply the Notice of Value's reasonable value by 0.04 to get the maximum concession dollar amount. VA.gov Closing Costs
- Track concessions separately: Keep funding fee, prepaids, buydowns, debt payoff, and gifts in one list and ordinary closing costs in another. VA.gov Closing Costs
- Recalculate after appraisal: The cap changes when the appraiser's reasonable value differs from the number used in the original agreement. VA.gov Closing Costs
Top questions before you dig in
Does the VA 4% rule cap everything a seller can pay?
Does seller-paid funding fee count toward the 4% cap?
What happens if seller concessions exceed 4%?
The Bottom Line Up Front
The VA limits seller concessions to 4 percent of the home’s reasonable value on the Notice of Value. Seller-paid closing costs have no VA percentage cap but can only cover actual eligible costs; they are not a second concession bucket. Concessions are a separate category covering funding fee, prepaid insurance, temporary buydowns, debt payoff, and gifts. The 4 percent is a ceiling on what the VA allows, not an amount the buyer automatically receives.
The distinction between what is a concession and what is a normal closing cost determines whether a deal is compliant. Keeping these categories separated in the contract, on the Loan Estimate, and on the Closing Disclosure prevents late-stage restructuring. After appraisal, the cap must be recalculated using the reasonable value from the Notice of Value, and concessions must be verified against that revised number before closing.
How is the 4 percent cap calculated?
The cap is 4 percent of the home’s reasonable value as determined by the VA appraiser and shown on the Notice of Value. This is not the contract price, the loan amount, or the sale price. If the appraisal differs from the contract price, the cap adjusts to match the appraiser’s finding.
- Reasonable value of $400,000 produces a cap of $16,000. Reasonable value of $390,000 on the same contract produces a cap of $15,600.
- The cap applies only to concessions. Ordinary closing costs paid by the seller are tracked separately and have no VA percentage cap but can only cover actual eligible costs.
- Escrow and prepaid amounts can change between the initial Loan Estimate and the Closing Disclosure, so the concession total should be rechecked before closing.
What counts as a concession and what does not?
The VA defines a seller concession as anything of value added to the transaction at no additional cost to the buyer. The VA separates these extras from ordinary closing costs. Only the extras count against the 4 percent cap.
| Item | Category | Notes |
|---|---|---|
| Seller-paid funding fee | Concession (4% cap) | First use 0% down: 2.15% of loan; subsequent: 3.30% |
| Prepaid taxes or insurance | Concession (4% cap) | VA.gov lists prepayment of the buyer’s hazard insurance as a concession |
| Seller-funded temporary buydown | Concession (4% cap) | Full escrow counted at closing; borrower qualifies at the full payment after the buydown ends |
| Debt or judgment payoff | Concession (4% cap) | Paying off buyer credit cards, auto loans, or judgments |
| Excess discount points | Concession (4% cap) | Points above the prevailing market rate; confirm with lender |
| Non-realty gifts | Concession (4% cap) | Appliances, furniture, or other personal property at no cost to the buyer |
| Appraisal, title, recording | Closing cost (no VA cap) | Standard settlement charges the seller may pay |
| Origination fee | Closing cost (no VA cap) | Subject to the 1 percent rule |
| Market-rate discount points | Closing cost (no VA cap) | Points at or below the prevailing rate are not concessions |
| Seller-paid buyer-broker fee | Closing cost (no VA cap) | Not a concession per Circular 26-24-14 and Change 1; Veteran-paid amount recorded in section H of the Closing Disclosure |
| Tax prorations, minor repairs | Confirm with lender | A seller’s customary tax proration at settlement is a settlement charge; paying the buyer’s future taxes is a concession. Confirm classification in writing. |
- Non-realty personal property added to the transaction (appliances, furniture) can count as a concession if the buyer pays nothing for it.
- The classification of each item, not the total dollar amount, determines compliance. A single misclassified item can push an otherwise compliant deal over the cap.
How does the funding fee affect the concession cap?
The VA funding fee is a concession when the seller pays it. Because the fee varies by use status and down payment, it can consume most of the 4 percent room before any other concession item is added.
| Status | Fee rate | Fee amount | 4% cap | Room after fee |
|---|---|---|---|---|
| First use | 2.15% | $8,600 | $16,000 | $7,400 |
| Subsequent use | 3.30% | $13,200 | $16,000 | $2,800 |
| Exempt | 0% | $0 | $16,000 | $16,000 |
Three complete deals
- Deal 1: $22,000 seller-paid on a $400,000 purchase (first use, compliant). The seller pays $6,000 in ordinary closing costs (appraisal, title, recording) and $16,000 in concessions ($8,600 funding fee + $4,400 prepaids + $3,000 debt payoff). The $6,000 in closing costs has no VA cap. The $16,000 in concessions equals the 4 percent cap exactly. Total seller contribution: $22,000; $16,000 counted against the cap, $6,000 outside it.
- Deal 2: Same $22,000 package, subsequent use, over the cap. The subsequent-use funding fee is $13,200 instead of $8,600. Adding $4,400 prepaids and $3,000 debt payoff brings concessions to $20,600, which exceeds the $16,000 cap by $4,600. The cure: reduce prepaids to $0 and cut the debt payoff to $2,800.
- Deal 3: $16,000 concession package with a $390,000 NOV. The contract price is $400,000, but the appraisal comes in at $390,000. The cap drops from $16,000 to $15,600. A concession package that was compliant at contract is now $400 over. The cure: reduce one concession item by $400.
How do temporary buydowns and discount points compare?
Both reduce the borrower’s payment, but they affect the concession cap differently. Seller-paid market-rate discount points are ordinary closing costs with no VA cap. A seller-funded temporary buydown is a concession that counts against the 4 percent limit.
- A 2-1 temporary buydown reduces the rate by 2 percentage points in year one and 1 point in year two. The full escrow amount counts against the cap at closing.
- Lenders are required to base their qualification decision on the full monthly payment amount that the borrower will owe after the temporary buydown period ends (VA.gov).
- Combining a seller-funded buydown with a seller-paid funding fee can consume most or all of the available 4 percent room, leaving no margin for escrow changes.
Are buyer-broker fees counted as concessions?
No. VA Circular 26-24-14 (June 11, 2024) and Change 1 (August 5, 2024) state that the VA does not treat the seller’s payment of buyer-broker charges as a seller concession. This applies whether the Veteran or the seller pays the buyer-broker fee. For a full breakdown of how commission rules interact with VA loans, see the commission rules guide.
- The circular authorizes a temporary local variance allowing Veterans to pay reasonable and customary buyer-broker charges in markets where listing brokers no longer set buyer-broker compensation through multiple listing postings.
- Per Change 1, Veteran-paid buyer-broker charges are recorded in section H of the Closing Disclosure and are not included in the loan amount.
- The seller can pay the buyer-broker charges without those charges counting against the 4 percent concession cap, per Circular 26-24-14, which cites VA Lenders Handbook M26-7, Chapter 8, Topic 5.
What happens when concessions exceed 4 percent?
When concessions exceed 4 percent of reasonable value, the deal must be restructured before closing so that total concessions fall within the cap.
- The most direct correction is reducing or removing concession items: shrink a temporary buydown, remove a debt payoff, or eliminate a gift.
- Shifting support into ordinary closing costs works when items are misclassified. If a charge is genuinely a normal closing cost, moving it out of the concession column reduces the concession total without reducing the seller’s actual contribution.
- If the appraisal is below the contract price, a reconsideration of value may change the reasonable value basis.
- Lender credits are not seller concessions. Replacing a seller concession with a lender credit removes the item from the 4 percent calculation. Per the CFPB, in exchange for a lender credit you pay a higher interest rate than you would have received without it.
A restructured deal requires updated disclosures. Use the VA closing costs calculator to model different concession splits before signing addenda, and review the result with the Loan Estimate review tool. All changes must be documented in writing before the Closing Disclosure is finalized.
Contract-to-closing checklist
- At contract: separate every seller-paid item into closing costs versus concessions in writing. Total the concession column and compare to 4 percent of the expected reasonable value.
- After appraisal: recalculate the cap using the NOV’s reasonable value. If the NOV is lower than expected, recheck every concession item against the new cap.
- At each revised Loan Estimate: confirm no new items have been moved into the concession column and that the total stays within the cap.
- Before signing the Closing Disclosure: reconcile every seller-paid item. If any seller credit exceeds the actual cost of the item it covers, confirm with the lender before closing.
- If concessions are over the cap: choose one correction path, document it in a written addendum, and verify compliance before finalizing.
Frequently Asked Questions
Is the 4% cap based on the loan amount or the appraisal?
Can a seller pay all closing costs on a VA loan?
Does seller-paid VA funding fee count toward the 4% limit?
Do normal discount points count as concessions?
Do temporary buydowns count toward the 4% cap?
Does seller-paid buyer-broker compensation count toward the 4% cap?
What happens if concessions exceed 4% on the Closing Disclosure?
What if a seller credit exceeds the actual cost of the item it covers?
How We Researched
Every claim on this page was verified against primary VA sources fetched and read on September 27, 2026. The 4 percent concession cap and the definition of concessions were confirmed on VA.gov. The buyer-broker classification was confirmed in VA Circular 26-24-14 and Change 1. Temporary buydown treatment and the qualification rule were confirmed on the VA temporary buydown guidance page. The funding fee rates were confirmed against 38 USC 3729(b)(2) and VBA Circular 26-23-06, effective April 7, 2023. The lender credit trade-off was confirmed via the CFPB.
Resources Used
- VA.gov: Funding Fee and Closing Costs Official VA guidance on closing costs, concessions, and the 4 percent cap.
- VA Circular 26-24-14 (June 11, 2024) Temporary local variance for buyer-broker charges. Confirms seller-paid buyer-broker fees are not concessions.
- VA Circular 26-24-14 Change 1 (August 5, 2024) Veteran-paid buyer-broker charges recorded in section H of the Closing Disclosure.
- VA.gov: Temporary Buydowns Seller-funded buydowns are concessions; borrower qualifies at the full payment after the buydown ends.
- CFPB: Lender Credits and Discount Points Lender credits raise the interest rate in exchange for lower closing costs.