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Nevin Williams

Allowable fees sellers can pay on a VA loan

Tuesday, March 19, 2013 - Article by: Nevin Williams - Sierra Pacific Mortgage - Message

In many instances a Veteran buying a home will ask the seller or builder to pay for something that is not customarily paid by them. We call this a "Seller concession."

Here is the definition: 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.

Seller concessions allowed on VA loans include, but are not limited to, the following:

  • payment of the buyer's VA funding fee
  • prepayment of the buyer's property taxes and insurance
  • gifts such as a television set or microwave oven
  • payment of extra points to provide permanent interest rate buy downs
  • provision of escrowed funds to provide temporary interest rate buy downs to pay off of credit balances or judgments on behalf of the buyer.

Seller concessions do not include payment of the buyer's closing costs, or payment of points customary to the market.

For example: If the market dictates an interest rate of 5 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.

Any seller concession or combination of concessions which exceeds four percent of the established reasonable value of the property is considered excessive, and unacceptable for VA-guaranteed loans.

Lenders do not include normal discount points and payment of the Veteran buyer's closing costs in total concessions for determining whether concessions exceed the four percent limit.

The reason for the 4 percent limit - In some extreme cases seller or builder concessions may entice unwary and unqualified veterans into home mortgages they cannot afford. The concessions may disguise the veteran's inability to qualify for the loan.

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