VA loan closing costs, seller credits and the 4 percent concession limit

The costs a VA buyer faces

VA's page lists the costs a buyer and seller can negotiate. They include agent commissions and fees, the loan origination fee, discount points, the credit report, the VA appraisal fee, hazard insurance and real estate taxes, state and local taxes, title insurance and recording fees. The lender sets the interest rate, points and most other loan charges, and VA notes that these vary between lenders.

Then there is the VA funding fee, a one-time charge that depends on how many times you have used the benefit and your down payment. Some veterans are exempt, such as those receiving VA disability compensation. Your Loan Estimate shows the fee, or shows it as exempt.

Only the funding fee can be financed

VA is direct about this. On a purchase loan you can finance only the VA funding fee into the loan amount. You pay everything else at closing. That makes closing costs the main cash need for many VA buyers, and the reason seller help matters.

Credits versus concessions

VA separates two kinds of seller help.

Closing-cost credits. The seller or builder pays some or all of your normal closing costs. VA does not limit these.

Seller concessions. VA defines a concession as anything of value added to the transaction at no extra cost to the buyer. Its examples are paying your VA funding fee, paying off your debts and prepaying your hazard insurance. Concessions cannot exceed 4 percent of the home's reasonable value, which appears on the VA Notice of Value your lender gives you.

The distinction matters when you ask for a large amount. A seller can cover your title, recording and lender fees without any VA cap. Paying your funding fee or clearing a car loan to fix your debt ratio counts toward the 4 percent.

Writing the offer

Sellers think in net proceeds, so a request for seller help is really a request for a lower net price. Two practical points help.

First, ask for a dollar amount that covers both buckets, and let your lender confirm how it will apply the money. Second, if the appraisal comes in below the price, the Notice of Value changes, and so does the 4 percent figure. Leave a little room under the limit.

Lenders generally do not let seller help exceed your actual costs, and any excess usually cannot come back to you as cash. Check with the lender before you agree to a specific number.

Reading the final numbers

Compare the Loan Estimate with the Closing Disclosure you get at least three business days before closing. The CFPB's explainers show where seller credits appear. Make sure the credits match the contract, the funding fee is shown correctly, and the cash to close is what you planned for.

The bottom line

Plan to pay VA closing costs in cash, except for the funding fee. Ask the seller for help in two buckets: normal closing costs, which VA does not cap, and concessions such as the funding fee, which are capped at 4 percent of the reasonable value. Then confirm both on the Closing Disclosure.