Summary: Sometimes sellers can make a home purchase more affordable for buyers taking out a VA loan by offering concessions. This article will explain how seller concessions work on VA loans.
Washington State has a fairly large military population. That means there are many home buyers in the state who could benefit from using a VA loan. One of the benefits of this program is that it allows sellers to contribute money toward the home buyer’s closing costs.
The ‘Seller Concession’ Defined
Home buyers in Washington who use a VA loan to buy a house usually have to pay closing costs. This is true for other mortgage programs as well. These are the various fees and charges that can accumulate during the home buying and mortgage process.
During the offer and negotiating stage, home buyers sometimes request the seller to contribute money toward their closing costs. This kind of contribution is commonly referred to as a seller concession.
Seller concessions are closing costs that the seller agrees to cover on behalf of the buyer. These concessions can make it more affordable for a buyer, and can also help sweeten the deal and help the seller close on a deal
Home buyers who are using a VA loan to buy a home in Washington can ask for seller concessions toward the closing costs. The Department of Veterans Affairs, which manages the program, allows for such concessions. Of course, that doesn’t mean every seller will be willing to make such a concession. It just means that they are allowed to do so.
Specific Rules for VA Loans
Here’s what the Department of Veterans Affairs says on the subject:
“The seller can pay for some closing costs. Under our rules, a seller’s ‘concessions’ can’t exceed 4% of the loan. But only some types of costs fall under this 4% rule. Examples are: payment of pre-paid closing costs, VA funding fee, payoff of credit balances or judgments for the Veteran, and funds for temporary ‘buydowns.’ Payment of discount points is not subject to the 4% limit.)”
Example: If the home buyer’s loan amount was $300,000, the seller would be allowed to contribute up to $12,000 (or 4%) for the specific items mentioned in the previous paragraph.
Note: In most cases, the seller can pay 100% of the buyer’s other closing costs (i.e., those that are not mentioned above). These include such things as the home appraisal, local taxes and recording fees. The 4% limit only applies to the specific costs mentioned in the VA quote provided above.
This is one of the major benefits of using a VA loan to buy a home in Washington State. This program is very generous in what it offers to borrowers. It allows eligible borrowers to:
- Buy a house with no down payment
- Avoid paying mortgage insurance
- Request a seller concession to cover some or all of the closing costs
Consider the Real Estate Market
Just because you can ask for a seller concession on a VA loan doesn’t necessarily mean you should. It largely depends on the type of real estate market you are in.
In a seller’s market (one with limited inventory but plenty of demand), buyers tend to ask for fewer concessions. On the other hand, a home buyer in a more sluggish real estate market might be able to ask for more in the way of seller contributions. This is true regardless of the type of home loan that’s being used.
You’ve probably heard the expression: “In real estate, everything is negotiable.” This applies to closing costs as well.
The buyer and seller have to agree on various terms of the sale — the price, the escrow period, etc. They also have to agree on whether or not the seller will contribute money to help cover the buyer’s closing costs, and if so by how much.
Got Mortgage Questions?
If you have questions about buying a home in Washington with a VA loan, or any other mortgage-related matter, Sammamish Mortgage can help. We serve the entire state, as well as the broader Pacific Northwest region that includes Idaho, Colorado, and Oregon. We offer a wide variety of mortgage programs and products with flexible qualification criteria. Please contact us if you have mortgage-related questions.