Mortgage – VA Seller Paid Closing Costs

VA Closing Costs

VA Closing Costs

VA mortgage guidelines set forth different limitations with regard to VA seller paid closing costs.  There are 3 different categories that dictate who can pay for the different closing costs associated with an Arizona VA home loan.

The 4% Concessions Limit

VA Mortgage Lenders will allow an AZ veteran buyer to receive up to 4% of the appraised value (not the purchase price) in the form of seller concessions (see section 5d “The Four Percent Limit” in VA’s official rule-book).  For example, if a VA buyer is purchasing a home for $300,000 and the home appraises for $300,000 the veteran buyer could receive a maximum of $12,000 in seller concessions ($300,000 x’s 4%).  What many people do not know is that payment of a VA borrower’s normal discount points and non-recurring closing costs is NOT included in the 4% maximum seller concession maximum limit.

There are several different costs that are associated with a Phoenix area VA home loan that the 4% seller paid concession maximum mentioned above can go toward.  Here are a few examples of what is included in the seller concession maximum of 4%:

1. Seller payment of the VA Funding Fee (yes the seller can pay for the VA buyer’s funding fee)
2. Seller’s pre-payment of property taxes and insurance
3. Payment of extra points to provide a permanent interest rate buy-down
4. Seller paying off credit balances or judgments on behalf of the VA borrower
5. Gifts from the seller such as a television set or a microwave

Unlimited Contribution toward Non-recurring Costs

On top of the 4% maximum seller concession, a VA buyer can also have a seller pay for 100% of the following “non-recurring” closing costs:

1. Title Work
2. Recording fees
3. Appraisal
4. Credit report
5. Discount points
6. Other lender fees

Again, a seller is allowed by VA to pay 100% of what are called “non-recurring” closing costs on top of the 4% seller concession maximum limit listed in the first section of this article.  Non-recurring closing costs are NOT factored into 4% seller concession total.

VA Non-Allowables – What Can’t a VA Buyer Pay

There is one more cost related category or topic that needs to be included in any VA closing cost discussion and that is the subject of VA Non-allowable fees.  VA Non-allowable fees are fees that the VA does not allow an Arizona VA buyer to pay for.  Learn more about VA Non-allowable category.  Keep in mind that while a veteran is not allowed to pay these costs themselves, that does not mean that the seller is on the hook for them.  The seller OR the VA buyer’s lender may 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.

Since the VA Non-allowable fees are non-recurring costs, they do NOT factor into the 4% seller concession maximum listed above.  If the seller agrees to pay for the VA Non-allowable fees they could still contribute an additional 4% of the appraised value toward items considered concessions AND pay for the remaining non-recurring closing costs for a VA buyer on a purchase transaction.

Clear as mud?  VA has the most specific and unique guidelines when it comes to who can pay for various VA mortgage related costs.  If you have any questions regarding how much a VA buyer can ask for with regard to seller paid closing costs (seller concessions) please call or email me.

By Jeremy House

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