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Let’s Make a Deal: Seller Concessions on a VA Loan

When it comes to the current housing market, the buyers are in charge.

Sellers often make concessions to sweeten the deal, which is allowed when you’re buying property with a VA loan.

Think of a seller concession as a gift of sorts—something of value that the seller offers to bring a buyer to a final offer. The Department of Veterans Affairs define them as “anything of value added to the transaction by the builder or seller for which the buyer pays nothing additional and which the seller is not customarily expected or required to pay or provide.”

Typically, if a prospective buyer expresses interest in a television, window treatments or kitchen appliances, a seller will consider including them in the purchase without raising the price of the home. This is a concession.

Types of Concessions

Another form of concession may be a financial offer that benefits the buyer.

For example, a VA loan applicant is normally required to pay the VA Funding Fee, a mandatory charge that helps keep the program running. While it’s less common on VA loans, borrowers can also pay points to buy down their interest rate.

A motivated seller can offer to pay these costs for the buyer in order to encourage the prospect to choose his or her property over another. The seller can also offer to pay insurance or property taxes for the buyer.

Although concessions sound wonderful, enough of them could entice a buyer to purchase more home than he or she needs.

Capping Concessions

The Department of Veterans Affairs has built-in protections to prevent that. One key provision caps the value of concessions at 4 percent of the home’s appraised value. This restriction keeps sellers from offering so many concessions that a buyer takes out a larger VA loan than they can afford.

But there are also things that can be offered that don’t count as concessions unless they exceed certain limits. For example, under VA regulations, paying a buyer’s closing costs or paying discount points that are typical for the housing market in question are not considered concessions. But if the buyer pays points above what is typical for the market, then it is considered a seller’s concession.

This value cap on seller concessions requires the seller to keep track of the concessions offered. But to be on the safe side, the buyer should list all the concessions received.