This guide covers VA guidelines on seller concessions to cover closing costs. VA loans is hands down the best mortgage loan program available today for owner occupant home buyers. Unfortunately, not everyone can qualify for a VA loan. Only veterans with a Certificate of Eligibility (COE) can qualify for a VA loan. One of the greatest benefits our country offers its veterans who has been honorable discharged and served our great country is the opportunity to qualify for a VA home loan.
Benefits of Buying a Home With a VA Loan
VA loans do not require any money down on down payment and closing costs due to VA guidelines on seller concessions: Most veterans can purchase a home with no money out of pocket. There are two types of costs involved when buying a home. The down payment and closing costs on a home purchase. VA does not require any down payment from the home buyer
Under VA guidelines on seller concessions, closing costs can be covered by the home seller through seller concessions. The way sellers concessions work is when a home seller will offer to pay all closing costs associated by the home buyer.
The home buyer does not have to come up with any money out of pocket. Is this for free? Nothing in this world is for free. The way it works and to best explain it is to use a case scenario example. In the following paragraphs, we will explain on how homebuyers can purchase a home with no down payment and no closing costs with a VA loan.
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VA Guidelines on Seller Concessions & How It Works
Say a home seller want $100,000 net in his pocket for his home. Veterans with a solid pre-approval letter and does not have to come up with any closing costs if the buyer gets a sellers concession by sellers.
Veteran home buyers with no money for the closing cost on VA home purchase can get closing costs covered with either a seller concession or lender credit or combination of both.
The home seller is allowed to offer up to 4% of the home purchase price as a sellers concession to the veteran. This way the veteran can cover all of his or her closing costs. On this case scenario, the veteran can offer 4% of the $100,000 or up to a maximum of $4,000 to the home buyer so the home buyer can cover his or her closing costs.
What Are Closing Costs on VA Home Purchase
Closing costs are any costs that is incurred in closing the home loan: Example of closing costs are pre-paid as well as prepaids: Two months property taxes and homeowners insurance for the borrower’s escrows. Title charges, one year homeowners insurance that the home buyer needs to pay upfront at closing. The appraisal fees. Inspection fees. Attorney’s fees. Recording charges for the city, county, state. Other third party or origination charges. On this case scenario, since the home seller wants a bottom line price of $100,000, the home seller: Home buyer will structure the real estate purchase contract at $104,000. The $4,000 will go to the home buyer towards their closing costs. The seller concession is stated on the real estate purchase contract for the home appraiser and the lender to see and is fully disclosed.
VA Guidelines on Seller Concessions Overage
Many VA home buyers do not want to pay any closing costs. They want to make sure that they have enough closing cost credit through a home seller concession and not want to be short. The Department of Veteran Affairs allows up to a maximum of 4% for a home seller to give a home buyer seller concessions towards their home purchase.
Any overages on a sellers concession cannot go back to the home buyer in a form of cash or other incentives. Overages In Seller Concessions needs to go back to the home seller.
It is almost impossible to know the exact figure for the closing costs a home buyer will incur at the time of the purchase contract. Therefore, most of the time, closing costs are estimated. If a home buyer has any overages in seller concessions, then the overage can be used to buy down the mortgage rates so the home buyer does not waste any seller concessions.
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VA Guidelines on Seller Concessions and How It Works
VA Loans is the best mortgage loan program for any home buyer. Again, VA Loans are limited for Veterans who have a valid Certificate of Eligibility certificate and in good standing. VA Loans do not require for the home buyer to put any money down. Closing costs can be covered with either a sellers concession by the home seller or by a lender credit towards the home buyer’s closing costs. How lender credit works is that the mortgage lender will cover the home buyer’s closing costs in lieu of charging a higher mortgage interest rates. There are times where a home seller will not offer a sellers concession and the home buyer will not have any funds to pay for their closing costs on their home purchase. The lender then can see how much of a lender credit they can offer the veteran for their home purchase. Veteran buyers can still purchase the home where all of the closing costs will be covered by lender. No money needs to come out of the home buyer’s pocket. VA loans offer extremely low mortgage rates.
VA Loans Versus Other Loan Programs
With Conventional Loans, the higher the down payment and lower the loan to value is, the lower mortgage rates: Conventional lenders offer lower mortgage rates for a home buyer who puts a larger down payment is because the home buyer is putting skin in the game.
The reason why lenders offer extremely low rates on VA Loans even though the veteran puts zero dollars down is because the VA loan is insured with the Department of Veterans Affairs in the event the borrower defaults on their VA loan.
In the event if the Veteran defaults on his or her VA Loan, the lender is insured with the loss by the VA. The more equity the home has and lower loan to value a property has, the lower the lender’s risk tolerance level is.
Qualifying For VA Mortgage With A Lender With No Overlays
VA does not have a minimum credit score requirement nor debt to income ratio caps. However, most VA lenders require a 620 to 640 credit score requirement and have debt to income ratio caps on VA Home Loans. Borrowers who need to qualify for VA Loans with a national mortgage company licensed in multiple states with no overlays on VA loans, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com.. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays to take your calls and answer any questions you may have on getting qualified for a VA loan.
