What is the VA Seller Concession Rule?

What Are VA Seller Concessions?

VA seller concessions are expenses that the home seller agrees to pay on behalf of the buyer. While VA loans already cap the amount a buyer can be charged for certain fees, seller concessions allow even more flexibility in covering expenses.

The VA defines seller concessions as any cost paid by the seller on the buyer’s behalf that exceeds standard closing costs. These concessions are separate from the standard seller-paid closing costs and can cover a wider range of expenses.

How Much Can a Seller Pay?

The VA allows seller paid closing costs up to 4% of the home’s purchase price. This is in addition to the standard closing costs a seller may cover, such as title insurance and the loan origination fee.

For example:

• On a $300,000 home, the seller could contribute up to $12,000 in concessions.
• On a $400,000 home, the seller could contribute up to $16,000.

However, it’s important to note that not all sellers will agree to this. Seller concessions are negotiable, and in a competitive market, some sellers may be less willing to offer these incentives.

Understanding the VA 4% Seller Concession Rule

Under VA loan guidelines, seller concessions can amount to as much as 4% of the home’s purchase price. It’s important to note that this is in addition to the standard loan-related closing costs that sellers may also cover.

For context, conventional loans generally cap seller-paid concessions at 3%, while FHA loans allow sellers to contribute up to 6%.

However, sellers are not obligated to provide concessions or cover any portion of a VA buyer’s closing costs. These contributions are always subject to negotiation between the buyer and seller. Having a real estate agent who understands VA loans can be a significant advantage in securing favorable terms. While some sellers may be open to concessions to help facilitate a sale, others may be less inclined.

VA Loan Closing Costs vs. Seller Concessions

To understand how VA seller concessions work, it’s essential to distinguish them from standard closing costs. Here’s a breakdown of what each can cover:

As you can see, seller concessions go beyond just covering closing costs—they can help with prepaid expenses, the VA funding fee, and even debt payoff.

What Can VA Seller Concessions Cover?

Unlike standard seller-paid closing costs, concessions can cover a wider range of expenses, including:

• VA Funding Fee – The VA funding fee is a mandatory fee for most VA loans, typically 1.25% – 3.3% of the loan amount. A seller can cover this cost, reducing the amount you need to finance.
• Prepaid Property Taxes and Homeowners Insurance – Lenders often require these expenses to be paid upfront at closing. If the seller covers them, it can free up cash for the buyer.
• Paying Off the Buyer’s Judgments or Collections – If you have outstanding debts that could impact loan approval, the seller can use concessions to settle them.
• Gifts Like Appliances or Furniture – Some sellers may agree to include home upgrades, appliances, or furniture as part of the deal.
• Discount Points – If you want to buy down your interest rate, seller concessions can cover this cost.

What Seller Concessions Cannot Cover

• Repairs to the home (these must be negotiated separately)
• Cash back to the buyer
• General home improvements

Benefits of VA Seller Concessions

When purchasing a home with a VA loan, seller concessions can provide significant financial advantages. While VA loans already remove the burden of a down payment, closing costs and prepaid expenses can still create financial strain. Seller concessions help offset these costs, making homeownership more accessible and affordable. Here’s how:

1. Lower Upfront Costs

Even though VA loans don’t require a down payment, buyers still need to cover various upfront expenses like appraisals, inspections, and lender fees. Seller concessions can:

• Reduce the amount of cash needed at closing
• Cover non-allowable fees that VA buyers aren’t permitted to pay
• Help buyers move in with extra cash on hand for home improvements or emergencies

2. Easier Financial Planning

Having the seller pay for prepaid expenses like property taxes, homeowners insurance, and the VA funding fee can provide breathing room for buyers in the first few months of homeownership. This means:

• No need to budget for upfront escrow deposits
• More manageable first-year housing expenses
• The ability to allocate money toward moving costs, furnishings, or emergency savings

Many first-time buyers underestimate the cost of owning a home beyond the purchase price. Seller concessions bridge the gap and allow for a smoother financial transition.

3. Increased Affordability

For buyers with limited savings, the added cost of closing fees can delay their ability to purchase a home. Seller concessions help by:

• Reducing the need to save thousands in additional costs
• Making homeownership attainable sooner rather than later
• Allowing buyers to invest in necessary home repairs or upgrades instead of spending money on closing fees

A seller concession can be the difference between being able to afford a home now versus needing to wait and save for additional upfront expenses.

4. Ability to Buy Down Interest Rates

One major benefit of VA seller concessions is that they can be used to buy down interest rates using discount points. Lower interest rates mean:

• Reduced monthly mortgage payments
• Less paid in interest over the life of the loan
• Greater long-term savings

If a buyer uses seller concessions to purchase discount points, they could secure a lower rate than if they had waited to refinance later.

5. More Negotiation Flexibility

Even in competitive markets, seller concessions are negotiable and can be used as a bargaining tool. Strategies include:

• Offering a higher purchase price in exchange for seller concessions
• Requesting specific expenses to be covered, such as the VA funding fee or prepaid insurance
• Using concessions as a way to make an offer more attractive to the seller without reducing the asking price

How to Negotiate Seller Concessions on a VA Loan

1. Work with a VA-Savvy Real Estate Agent

A real estate agent who understands VA loans will know how to structure your offer to maximize seller concessions while keeping the deal attractive to the seller.

2. Highlight the Seller’s Benefits

Explain how offering concessions can help close the deal faster. Many sellers are willing to negotiate, especially if they are motivated to sell.

3. Offer a Competitive Purchase Price

If you’re asking for seller concessions, consider offering a slightly higher price to make the deal more appealing.

Real-World Example of VA Seller Concessions in Action

Let’s say a veteran is purchasing a $350,000 home. They negotiate for the seller to cover the maximum 4% in concessions, which amounts to $14,000. Here’s how that could be allocated:

By negotiating seller concessions, the buyer eliminates thousands in upfront expenses.

The Bottom Line

Frequently Asked Questions

Can a seller pay all my closing costs on a VA loan?

Yes, sellers can pay standard closing costs, but additional seller concessions are limited to 4% of the home’s price.

Do VA seller concessions increase my loan amount?

No, seller concessions are paid by the seller at closing and do not impact your loan balance.

Can I ask for seller concessions on a new construction home?

Yes, but builders may have restrictions on how much they’re willing to contribute.

Are seller concessions common in today’s market?

It depends on market conditions. In a buyer’s market, sellers are more likely to offer concessions to attract buyers.

Can I negotiate seller concessions on a home priced below market value?

Yes, but a seller may be less willing if they’re already offering a discounted price.