Can the Seller Pay Closing Costs on a VA Home Loan?

Can the home seller pay my closing costs? How much?

Nice houseA VA loan has the advantage of allowing the home seller to pay all reasonable closing costs on behalf of the Veteran. Assuming the seller covers all closing costs in full and there is no down payment, it is conceivable, and perhaps probable, that the Veteran can purchase a home with nothing out-of-pocket.

The VA seller concession guideline is a little confusing. The Veteran's Administration permits the seller to pay all closing costs on behalf of the Veteran. Typically, closing expenses include title insurance, a title search, an appraisal, a credit report, and any lender-allowable fees. Where seller assistance becomes complicated is the 4% cap.

Here's what the VA underwriting manual says about seller paid assistance (Chapter 8: Borrower Fees and Charges):

VA manual seller assistance.1

Further down the page, you will find the following instruction to the lender/underwriter:

VA manual regarding seller assistance

All to often, underwriters incorrectly believe that the total seller concession is limited to 4%; that's not correct. The 4% limit is directed at seller enticements. For example, if the seller includes a big screen television with the purchase, or pays excessive discount points in order to lower the interest rate. Again, here is what the VA means about seller concessions:

VA-seller-assistance.3

The 4% rule usually applies to prepaid homeowner's insurance, real estate tax escrow, per diem interest, etc.


A One-Percent Flat Fee Charged by the Lender

The VA allows lenders to charge the Veteran a 1% flat fee to cover a variety of costs, including:

VA-lender-fees

Over the years, I have argued with underwriters about the 4% seller concession limitation. If the underwriter stands firm that seller paid closing costs are limited, complain to the VA.

SOURCE: Chapter 8: Borrower Fees and Charges and the VA Funding Fee

Conclusion

In conclusion, it is possible for the seller to pay closing costs on a VA home loan. There are some stipulations that must be met in order for this to happen, but it is a viable option for both the buyer and seller. If you are interested in learning more about this process, please contact a VA loan specialist.