What are VA Loan Closing Costs & Seller Concessions?
VA loans are those made available to active military members, veterans, and National Guard members and Reservists (the latter two requiring at least six years of service to be eligible). There are many benefits to acquiring a VA loan when it comes time to venture into home ownership territory—not the least of which is requiring minimal down payments and lower interest rates.
However, there are certain cost and concessions that accompany VA loans that applicants should be aware of. Again, many of these are turned to an advantageous end thanks to government support, but they can still impact the home purchaser’s budget and eventual monthly mortgage payment, and so should be taken into account.
Veterans are limited in the types of closing costs they need to pay. These include the property appraisal, acquiring of their personal credit report, the title insurance, origination fee, recording fee, and property surveys. VA loan funding fees are also applicable, unless the veteran is exempt. On the flipside, there are certain closing costs a veteran is not permitted to pay, such as attorney fees, underwriting fees, escrow, processing fees, document fees, and tax services.
If the veteran in question is not meant to pay these off-limit fees, who does? There are several options here. First is seller concessions. The home seller can pay up to 4% of the home sales price in closing costs, and these seller concessions can even be applied to the buyer’s VA funding fee, loan costs, property taxes, and mortgage insurance.
Alongside seller concessions, the buyer’s real estate agent may contribute to the closing costs in the form of a closing table credit, often taken out of their commission from closing the sale. Lenders may also cover closings costs by adjusting the borrower’s interest rate. As a final alternate, the borrowing veteran can circumvent the non-allowed fees and offer payment in the form of an origination fee equal to 1% of the loan amount.
Other seller concessions may include direct payments toward borrower debt balances, payment of extra points to permanently buydown loan interest rates, escrow funding to temporarily reduce interest rates, and even gifts such as television, appliances, or other valuable home furnishings. While limited in many ways (such as in what veterans are allowed to pay and the limit of seller concessions), VA loans still provide an inordinate amount of flexibility that practically assures a mutually beneficial agreement will be reached.
