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VA Guidelines On Sellers Concessions To Cover Closing Costs

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VA Guidelines On Sellers Concessions To Cover Closing Costs

This BLOG On VA Guidelines On Sellers Concessions To Cover Closing Costs Was UPDATED On February 9th, 2019

What Are VA Guidelines On Sellers Concessions

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
  • VA Loans do not require any money down on down payment and closing costs due to VA Guidelines On Sellers 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 puchase
  • VA does not require any down payment from the home buyer
  • Under VA Guidelines On Sellers Concessions, closing costs can be covered by the home seller through sellers 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:

VA Guidelines On Sellers 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 sellers 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-paids  the folllowing:
    • 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
    • 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 sellers 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 Sellers 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 sellers 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 sellers concessions towards their home purchase
  • However, any overages on a sellers concession cannot go back to the home buyer in a form of cash or other incentives
  • Overages In Sellers 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 so most of the time, closing costs are estimated
  • If a home buyer has any overages in sellers concessions, then the overage can be used to buy down the mortgage rates so the home buyer does not waste any sellers concessions

About VA Home Loans

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 more equity the home has and lower loan to value a property has, the lower the lender’s risk tolerance level is
  • The reason why lenders offer extremely low mortgage 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 if the Veteran defaults on his or her VA Loan

Qualifying For VA Mortgage With Direct 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 direct lender licensed in multiple states with no overlays on VA Loans, please contact us at The Gustan Cho Team at Loan Cabin at 262-716-8151 or text us for faster response. Or email me us at gcho@loancabin.com.. We are 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.

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