Common Questions on the VA Loan Rules For “Concessions”

VA loan rules are written to include the possibility that a seller might make a financial contribution as part of the VA loan transaction--a contribution from the seller can make a particular home purchase more attractive to the borrower if the buyer and seller can’t come to an agreement on the price or other details.

If the seller wants to sell, and the buyer wants to buy, but the asking price becomes a sticking point for some reason, the seller concession can help make the deal more appealing.

But VA loan rules include certain parameters for these concession. Let’s examine them.

What Does The VA Consider To Be A Seller Concession?

For this answer, it’s best to go directly to the source--the VA loan rulebook, VA Pamphlet 26-7, states, “...a seller concession is 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.”

What Can the Seller Offer as a Concession?

VA loan rules permit a variety of seller concessions including (but not limited to) the following things as described in VA Pamphlet 26-7:

  1. payment of the buyer’s VA funding fee
  2. prepayment of the buyer’s property taxes and insurance
  3. gifts such as a television set or microwave oven
  4. payment of extra points to provide permanent interest rate buydowns
  5. provision of escrowed funds to provide temporary interest rate buydowns,
  6. payoff of credit balances or judgments on behalf of the buyer.

 

Does the VA Restrict Seller Concessions?

Yes--VA loan rules do not permit the payment of closing costs or “payment of points as appropriate to the market.” This can be confusing--does the VA allow the seller to pay ANY points on the VA mortgage loan?

According to this quote from VA Pamphlet 26-7, yes. According to the VA, “If the market dictates an interest rate of 71⁄2 percent with two discount points, the seller’s payment of the two points would not be a seller concession. If the seller paid five points, three of these points would be considered a seller concession.”

For more information on seller concessions, speak to your loan officer about what is permitted in your particular transaction.

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