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What Does a VA Loan Require the Seller to Pay?

Buyer and seller signing closing documentsIf you're a veteran or active-duty military member thinking about a VA loan, you might wonder what the seller must pay. VA loans are not like regular loans. They have their own set of rules about who pays the closing costs.

The Department of Veterans Affairs backs VA loans. The seller may pay some specific closing costs. We will look at these costs. This happens if the buyer uses a VA loan to buy their home.

Understanding VA loans

VA loans are a special kind of mortgage loan. The U.S. Department of Veterans Affairs (VA) backs them. They help active-duty military members, veterans, and some surviving spouses get easy and affordable home loans. Borrowers get many benefits with a VA loan that they won't find in other mortgage types.

Overview of VA Loans

VA loans are mortgages backed by the VA. They are for people who served in the military, including active duty, veterans, and certain surviving spouses. The VA loan program aims to help these groups own homes. It achieves this by providing loans with excellent terms and conditions.

Benefits of VA Loans for Veterans

One significant benefit of VA loans is the absence of a down payment requirement. This makes it simpler for VA borrowers to buy a home. VA loans also have lower interest rates than regular mortgages. This means less money is spent on the loan's life. VA loans also do not require private mortgage insurance (PMI), which lowers the loan's cost.

You can also get a VA loan more than once. Say you use your VA loan to buy one home, then pay it off. Later, you can get another VA loan for a different house. VA loans are also easier to get because they have flexible credit rules. This makes them accessible to many more people.

Seller's Responsibilities with a VA Loan

When someone buys a home using a VA loan, the seller has specific duties and limits. They can't charge the buyer specific closing costs. Let's examine the seller's expected coverage in more detail.

The VA does not explicitly designate responsibility for pest services payment. However, in some states and per mortgage lender requirements, sellers may be obligated to cover service and repair costs up to a specified limit.

VA Non-Allowable Fees

The VA loan rules say sellers can't make the buyer pay for specific fees. These cover loan application, origination, underwriting, and more. The seller's responsibility is to cover these costs, not the buyer's.

Here's a list of VA non-allowable fees:

  1. Attorney fees in connection with the preparation of loan or closing documents.
  2. Broker fees when using a mortgage broker to arrange a loan.
  3. Notary fees for loan documents.
  4. Escrow fees or charges for preparing documents, retaining documents, or handling funds on the lender's or seller's behalf.
  5. Transaction coordinator fees are used to coordinate the loan or sale process.
  6. Document preparation fees for preparing loan or closing documents.
  7. Underwriting fees for the cost of underwriting services the lender provides.
  8. Fees for preparing truth-in-lending disclosures, reasonable faith estimates, or other loan-related disclosures.
  9. Warehousing fees for holding the loan funds between closing and delivery to the investor.
  10. Notary fees for loan documents.
  11. Commitment fees or fees charged by the lender for making the loan.
  12. Photographs and termite reports for new construction properties.
  13. Charges for preparing loan-related documents when the veteran pays for these services.
  14. Prepayment penalties for paying off the loan before its maturity date.
  15. Discount points for reducing the interest rate.
  16. Title examination or title insurance fees for the lender's policy.

These fees cannot be charged to the veteran in a VA loan transaction.


Impact on the Selling Process

Using a VA loan can change how selling a home works, especially with closing costs and talks between buyers and sellers. VA loans have rules that influence the mortgage closing costs and the total closing costs of a house sale.

Effect on Closing Costs

A VA loan can significantly affect sellers' closing costs. Sellers frequently have to pay a VA funding fee and any discount points, which means they might need to handle more of the closing costs on a VA loan than on a conventional mortgage.

Influence on Negotiations

Choosing a VA loan might make sellers less eager to work with you. They might think VA loans are too complicated. But smart sellers could see this as a chance to get a deal done. They might offer to pay more of the closing costs on a conventional mortgage to attract VA buyers and ensure the sale goes through.

We Are Comparing VA Loans to Other Types of Loans

Veterans and active-duty military often choose VA loans for their unique perks. Yet, it is crucial to compare them to conventional mortgages. This is especially true regarding closing costs and what sellers must pay.

VA loans differ from conventional ones in their approach to closing costs. Conventional mortgage costs are negotiable between the buyer and seller, whereas VA loans enforce stricter regulations. For example, VA loans restrict the fees that the borrower can incur. These are called "non-allowable fees."

One significant distinction is who pays the closing costs. With VA loans, sellers sometimes need to cover expenses like the VA funding fee, which they might not have to pay with a conventional loan. These differences can affect what buyers and sellers decide on.

Choosing between a VA loan and a conventional one means carefully examining closing costs and seller duties. Knowing these details helps buyers and sellers determine what's best for their financial goals.

This Section Provides Tips for Sellers Dealing With VA Loans

Knowing the rules is crucial if you sell a home to someone with a VA loan. Here's what you should do:

  1. Prepare to handle specific closing costs for VA loans. This might include the VA funding fee and the lender's discount points.
  2. Understand the VA's prohibited fees, which the buyer cannot cover. These items include loan application fees and admin charges. You must be ready to discuss covering these costs to attract the buyer.
  3. Consider giving the buyer and seller concessions, such as helping with their closing costs. This intelligent move makes your home more desirable to VA loan users.
  4. Be ready to chat with the buyer and their VA lender. VA loans can be tricky; being open and flexible can help everything go smoothly.

Knowing the ins and outs of VA loans makes selling easier. By preparing and being open, you enhance the sale's success. You also improve the homebuying experience for VA loan buyers.

Seller Paid Closing Costs

The seller can cover the buyer's allowable closing costs and up to 4% of the buyer's prepaid expenses. Prepaid expenses typically include real estate tax proration, tax, homeowner's insurance, and other related costs.

Conclusion

In conclusion, using a VA loan to buy a home changes things for the seller. The seller must cover some costs, such as the VA funding fee and discount points. Also, the seller can't make the buyer pay certain costs. This could lead the seller to adjust the price or offer something extra to cover these expenses.

Both buyers and sellers must know about the VA loan rules. Buyers must understand that some costs may be incurred, and sellers should be ready to handle these extra expenses. Using a VA loan can benefit both sides, but knowing the rules is essential.

Are you a veteran considering a VA loan or a seller dealing with a VA buyer? It's critical to learn about the extra costs and discuss them. This will ensure that the deal goes smoothly for everyone involved.

SOURCE:
VA Policy on Fees and Charges Paid by the Veteran- Borrower

Recommended Reading
Are VA Loans Better Than Conventional? 
Closing on Your Home with a VA Loan: What to Expect

Common VA Loan Mistakes to Avoid