What Can a VA Loan Require a Seller to Pay?

If you're asking, "What can a VA loan require a seller to pay?" the short answer is: nothing. The VA does not force sellers to pay any costs. However, VA loan rules create a unique set of non-allowable fees that buyers cannot pay - and sellers often step in to cover them. This guide explains what sellers can and cannot pay, how VA loan seller concessions work, and how to negotiate a successful VA transaction.

Understanding VA Loans and Seller Obligations

VA loans are mortgages backed by the U.S. Department of Veterans Affairs. They offer no down payment, no private mortgage insurance, and competitive rates for eligible veterans, active-duty service members, and surviving spouses. But the VA also sets strict rules about which closing costs a veteran can be charged. These rules indirectly shape what a seller may need to cover.

Unlike conventional loans, where closing costs are freely negotiable, VA loans have a list of "non-allowable fees." These are costs the veteran borrower cannot legally pay. If these fees appear on the Closing Disclosure, the seller or lender must cover them. That is why sellers often end up paying certain costs in a VA transaction - not because the VA requires it, but because the buyer is prohibited from paying them.

What Are VA Non-Allowable Fees?

The VA maintains a list of fees that cannot be charged to the veteran. Sellers must either pay these or the lender must absorb them. Common non-allowable fees include:

1. Loan application, origination, and underwriting fees
2. Attorney fees for preparing loan or closing documents
3. Broker fees for arranging the loan
4. Notary fees for loan documents
5. Escrow fees for document preparation or handling funds
6. Transaction coordinator fees
7. Document preparation fees
8. Warehousing fees
9. Commitment fees
10. Prepayment penalties
11. Title examination or lender's title insurance fees
12. Photographs and termite reports for new construction

These fees must be paid by the seller, the lender, or a third party - never by the veteran. This is a key reason why VA loans can seem more complex to sellers.

What Sellers Can Pay on a VA Loan

While the VA does not require sellers to pay anything, it does allow them to contribute generously. Sellers can pay:

• Buyer's allowable closing costs - such as appraisal, credit report, flood certification, and recording fees.
• Discount points - to reduce the buyer's interest rate.
• The VA funding fee - a one-time fee that normally the buyer pays, but sellers can cover it.
• Prepaid expenses - up to 4% of the sales price, including property taxes, homeowners insurance, and prorated interest.

There is no cap on seller-paid discount points or the VA funding fee. The 4% limit applies specifically to prepaid expenses and certain closing costs. This flexibility makes VA loans attractive to buyers - and gives sellers a powerful negotiation tool.

How Seller Concessions Work in VA Loans

Seller concessions are negotiated between buyer and seller. In a buyer's market, VA buyers often ask sellers to cover all allowable closing costs and prepaid items. Sellers may agree to pay up to 4% of the purchase price toward these costs. Additionally, sellers can pay discount points and the funding fee without limit. This can make a VA offer more competitive than a conventional offer, especially if the buyer has limited cash.

It's important to note that the 4% cap is based on the sales price, not the loan amount. For example, on a $300,000 home, the seller can contribute up to $12,000 toward prepaid expenses and allowable closing costs. Discount points and the funding fee are separate and not counted toward the 4% limit.

VA Loan vs. Conventional Loans: Seller Cost Differences

In a conventional loan, closing costs are negotiable and there are no non-allowable fees. Sellers can agree to pay any portion of the buyer's costs. In a VA loan, the seller must be aware of non-allowable fees and the 4% concession cap for certain items. However, VA loans also allow sellers to pay the VA funding fee - something not applicable to conventional loans. Sellers who understand these differences can use them to attract serious buyers.

If you're comparing loan types, see our guide on VA loan vs conventional loan for a full breakdown.

Tips for Sellers Dealing With VA Loans

If you're selling to a VA buyer, here's how to navigate the process smoothly:

1. Know the non-allowable fees. Review the VA's list so you're not surprised at closing.
2. Budget for possible concessions. In competitive markets, offering to cover closing costs or the funding fee can seal the deal.
3. Communicate with the buyer's lender. VA loans require extra coordination - stay flexible and responsive.
4. Consider the big picture. VA buyers are often well-qualified and motivated. A small concession can lead to a faster, smoother sale.

For a deeper dive into what sellers typically pay, see our article on VA loan closing costs paid by seller.

Frequently Asked Questions About VA Seller Costs

Does a VA loan require the seller to pay closing costs?

No. The VA does not require sellers to pay any closing costs. However, sellers are allowed to pay buyer closing costs, discount points, and even the VA funding fee as part of negotiations. In practice, many sellers agree to cover some costs to make the deal more attractive.

What fees can a seller NOT charge a VA buyer?

Sellers and lenders cannot charge VA buyers for non-allowable fees such as loan application fees, broker fees, underwriting fees, document preparation, notary fees, and certain title fees. These must be paid by the seller or lender.

How much can a seller contribute to a VA loan?

A seller can contribute up to 4% of the sales price toward the buyer's prepaid expenses and closing costs. There is no limit on seller-paid discount points or the VA funding fee. So in total, a seller could pay significantly more than 4% if they choose to cover points and the funding fee.

Can a seller pay the VA funding fee?

Yes. The VA funding fee is normally paid by the buyer, but sellers are allowed to pay it on the buyer's behalf. This is a common concession in competitive markets.

Are seller concessions tax-deductible for the seller?

Seller concessions are generally not tax-deductible for the seller. However, they can reduce capital gains if they are considered selling expenses. Consult a tax professional for advice specific to your situation.

Conclusion

So, what can a VA loan require a seller to pay? Nothing is mandatory - but sellers who understand VA rules can use concessions strategically to attract buyers and close deals faster. By knowing the non-allowable fees, the 4% concession cap, and the flexibility on points and the funding fee, both buyers and sellers can navigate a VA transaction with confidence. For more tools, try our VA streamline refinance calculator or explore our VA closing costs guide.