The 4 percent cap is not what most people think
Search for VA seller concessions and you will read that the seller can pay 4 percent. That is true, and it is also badly incomplete, because it describes only one of two separate allowances.
Bucket one, closing costs. The seller can pay your loan related closing costs: origination, appraisal, title, recording, discount points. There is no VA cap on this at all. It is limited only by what the seller agrees to and what your lender will allow.
Bucket two, concessions. Anything of value that goes beyond normal closing costs is a concession, and those are capped at 4 percent of the reasonable value of the property. That includes paying your VA funding fee, prepaying your property taxes and insurance escrow, paying off your credit cards or car loan so you qualify, or leaving behind appliances and furniture.
Add them together and a motivated seller can cover far more than 4 percent of your total costs. Set the seller fields above and watch the cash to close fall.
Fees you are not allowed to pay
The VA protects the veteran from a specific list of charges. Your lender can either charge a flat 1 percent origination fee, or itemize the individual fees below, but never both.
- Loan application, processing, and underwriting fees
- Document preparation fees
- Tax service fees
- Interest rate lock-in fees
- Prepayment penalties of any kind
- Attorney fees, other than for title work
- Real estate brokerage or commission fees
- Escrow or settlement fees charged in addition to the 1 percent
If any of these appear on your Loan Estimate alongside a 1 percent origination charge, ask the lender to remove them. This is one of the most common places a VA buyer quietly overpays.
What you can pay
Allowable charges to the veteran include the VA appraisal, the credit report, a recording fee, title insurance and title examination, hazard insurance and real estate taxes going into escrow, discount points to buy down the rate, and the funding fee itself, which nearly everyone finances instead of paying in cash. See our funding fee calculator for your exact amount and whether you are exempt.
How to actually get the seller to pay
Concessions are a negotiation, not a right. A few things that work:
- Ask for a dollar amount, not a percentage. Sellers understand "8,000 dollars toward my closing costs" better than "4 percent in concessions."
- Trade price for costs. Offering a slightly higher price in exchange for the seller covering your costs converts cash you do not have into a loan you already qualify for.
- Use it to buy down the rate. Seller paid discount points lower your payment for the life of the loan, which is usually worth more than the same money as a price reduction.
- Watch the appraisal. A higher price only works if the home appraises for it. If the VA appraisal comes in low, VA buyers have the right to walk away and keep their deposit.
What this does to your approval
Seller paid costs do not lower your loan amount, so your monthly payment is unchanged. What they change is the cash you need on day one. If you are short on savings rather than short on income, concessions are the single most powerful tool in a VA purchase. If income is the constraint, look at the residual income test instead, since that is what usually decides a VA approval.
Frequently asked questions
How much can a seller pay on a VA loan?
There are two separate allowances. The seller can pay all of your loan related closing costs with no VA limit, and separately can give up to 4 percent of the property value in concessions such as paying your funding fee, prepaying escrow, or paying off your debts. Combined, a seller can legally cover well over 4 percent of your total costs.
What counts as a seller concession on a VA loan?
Anything of value beyond normal closing costs. That includes paying the VA funding fee, prepaying your property taxes and insurance, paying off a buyer's credit cards or car loan to help them qualify, and leaving behind appliances or furniture. Paying ordinary loan related closing costs is not a concession and is not capped.
What fees can a veteran not pay on a VA loan?
Loan application, processing, underwriting, document preparation, tax service, and rate lock fees, plus prepayment penalties, brokerage or commission fees, and attorney fees other than for title work. The lender may charge a flat 1 percent origination fee or itemize allowable fees, but not both.
Can I buy a house with zero out of pocket using a VA loan?
It is possible. With no down payment required, the funding fee financed into the loan, and a seller willing to cover closing costs and concessions, a VA buyer can reach very close to zero cash at closing. It depends entirely on what the seller agrees to, so it is a negotiation rather than a guarantee.
Do seller concessions lower my monthly payment?
Not directly, because they do not reduce your loan amount. They reduce the cash you need at closing. The exception is when concessions are used to buy discount points, which do lower your interest rate and therefore your payment for the life of the loan.
Is the VA funding fee part of the 4 percent concession cap?
Yes. If the seller pays your funding fee, that counts against the 4 percent concession limit. If you finance the fee into the loan, which is what most buyers do, it does not touch the cap at all and does not affect your cash to close.
Take this to your realtor before you write the offer
Print the concession numbers so your agent asks for the right amount in the right bucket, then grab the free VA Loan Guide.