VA Closing costs – who can pay for them? This topic often confuses buyers and sellers alike. VA home loan rules govern which and how much of a buyer’s VA Closing Costs veterans cannot pay. In fact, VA Closing Costs break down into 3 categories. Each VA Closing Cost category has it’s own separate rules. The 3 categories are:
- Closing Costs
- Non-recurring Costs
- Non Allowable Costs
The 4% “Closing Costs” Concessions Limit
VA Mortgage Lenders allow sellers to pay a VA buyer’s closing costs. The most the seller can pay is and amount equal to 4% of the home’s appraised value. For example:
- VA buyer purchases a $300,000 home
- $300,000 x 4% = $12,000
The buyer in this case may receive up to $12,000 in credit toward closing costs from the seller.
What VA Home Loan Costs Count as Closing Costs?
Most veterans do not know what costs count toward the 4% maximum seller concession maximum limit. Below are costs sellers can pay and that count toward the 4% max Closing Costs limit.
- VA Funding Fee
- Property taxes and insurance
- Buyer’s credit balances or judgments
- Gifts from the seller such as a television set or a microwave
Unlimited Contribution toward “Non-recurring Costs”
On top of the 4% seller concession limit costs, sellers can also pay for 100% of the following “non-recurring” closing costs:
- Title Work
- Recording fees
- Credit report
- Discount points
- Other lender fees
VA Non-Allowable Fees – What Can’t a VA Buyer Pay
VA Non Allowable fees are the 3rd and final category VA has for loan costs. It is not only the final but also the most confusing category. Simply put, VA does not allow veterans to pay any costs falling under the VA Non-allowable fee umbrella. The confusing part for sellers and agents is figuring what costs and what amounts are considered VA Non Allowable fees. To keep this article short check this out to learn more.
While a veteran can not pay these fees, other parties can. However, this does equate to “pin the fee on the seller”. In fact, the seller, a real estate agent and/or the VA buyer’s lender can pay these fees for the veteran. Typically an AZ VA lender accomplishes this by increasing the Veteran’s interest rate slightly above “market” to help generate enough revenue to provide a lender credit.
VA Non-allowable fees do not count toward the 4% seller concession limit. Sellers can pay for VA Non-allowable fees, 4% of appraised value toward concessions and also all remaining non-recurring closing costs for a VA home loan/buyer.
Clear as mud?
By Jeremy House