Standard Closing Costs

You’ll see These typical fees in nearly every home transaction: title insurance, escrow charges, lender fees, etc. In a VA loan scenario, the seller can pay all of these “reasonable and customary” closing costs if it’s negotiated in your purchase contract. The best part? These costs do NOT count toward the VA’s 4% limit.

VA Seller Concessions

The VA defines “concessions” more narrowly. Under VA guidelines, the seller can provide concessions up to 4% of the home’s sales price. Concessions typically include:

• Payment of your VA funding fee (the upfront fee usually financed into your loan).
• Payment of your property taxes and/or homeowners insurance (prepaid items) in advance.
• Paying off judgments or debts on your behalf so you can qualify more easily.
• Offering free appliances or extras not considered standard in your local market.
• Think of concessions as those “above and beyond” perks the seller offers that aren’t considered a normal cost for them in a transaction.

4% in Action: A Quick Example

Let’s say you’re purchasing a home for $300,000:

• Seller Concessions (4% cap): 4% of $300,000 = $12,000.
  • The seller can use this $12,000 to cover your VA funding fee, buy down your interest rate, or even pay off an old credit card debt if that helps you qualify.
• Closing Costs (No specific cap): The seller could still pay your standard closing costs—like the appraisal, title fees, and lender charges—outside of that 4% concession limit.

So, imagine the seller is feeling especially generous and agrees to:

• Pay $7,000 toward your VA funding fee (out of that $12,000).
• Allocate $5,000 to buy down your interest rate or cover property taxes.
• Then, they also cover “normal” closing costs (like title or escrow fees), let’s say another $4,000, which doesn’t tap into the 4% limit.

Total from the seller: $7,000 + $5,000 + $4,000 = $16,000.
But guess what? Only $12,000 of that counts toward the 4% concession cap. The other $4,000 is considered “reasonable and customary” closing costs.

Another Scenario: $400,000 Purchase

Let’s raise the stakes with a home that’s $400,000:

• 4% of $400,000 = $16,000 (potential concessions).
• The seller could offer to pay your entire VA funding fee (say, $9,000 for a first-time VA user at a typical 2.3% fee rate). That leaves $7,000 in possible concessions to help lower your interest rate or handle other eligible items.
• Plus, they can still chip in on your standard closing costs—like escrow, title, and lender fees—again, outside the 4% limit.

The moral of the story? VA concessions can be a powerful tool to reduce your out-of-pocket expenses. They won’t show up on every contract, but if you’re able to negotiate, it can bring down your overall costs.

Key Takeaways

1. 4% Is the Magic Number
   Seller concessions—like paying off debts, covering the VA funding fee, or prepaying taxes—are capped at 4% of the home’s sales price.
2. Closing Costs Are Separate
   Items considered “reasonable and customary” closing costs can be paid by the seller on top of that 4% without affecting the concession limit.
3. Negotiate Smart
   In a competitive market, sellers might be less eager to pay concessions. Still, it’s always worth discussing what’s possible—especially if you’re getting a deal on the house or the seller is motivated.
4. Every Situation Is Unique
   VA loans have guidelines, but each transaction can differ. Work closely with your lender (that’s me!) and your real estate agent to strategize the best approach.

Need Help or Have Questions?

If you’re thinking about using your VA benefits to buy a home—or you just want to explore your options—shoot me a message or give me a call. As a U.S. Navy veteran and Certified Veterans Lending Specialist, I’m here to guide you through all the ins and outs of the VA loan process.

No question is too big or small, and hey, after two decades in this business, I’ve seen just about every scenario you can imagine. Let’s make your journey to homeownership as smooth as possible!

– Aaron Hoy, U.S. Navy Veteran & Sr. Loan Officer
Certified Veterans Lending Specialist | Helping Veterans Since 2001