VA loans offer a truly unique, deal-saving option that few understand! While you may know that VA has a seller concession limit of 4% of the sales price, you might not know WHAT is included in that 4%.
Sellers can pay up to 4% in sales concessions to include:
Buyer's funding fee
Prepaid taxes and insurance
Gifts such as television, microwave, etc
Interest rate buy down points
Temporary buy down funds
Payoff of credit balances or judgments on behalf of the buyer (Yep! That's right!)
Payment of closing costs and normal discount points (that aren't for the purpose of buying down the interest rate) are NOT included in the 4% limitation.
Sales price of $200,000. Seller can pay 4%, or $8,000 on behalf of the borrower. PLUS standard closing costs. The tricky thing is prepaids are counted against the 4% limit, but closing costs are in addition to the 4% limit!
So lets say, for the purpose of this example only, upfront and prepaids for taxes, insurance and escrow accounts = $2,000
Buyer has a car loan with a balance of $6,000, that the seller is willing to pay off. That would max out the 4% seller concession limitation. BUT the seller could still pay all closing costs. So, if your closing costs are $3,000, a seller could pay $11,000. Thus the veteran gets in with no out of pocket and no more monthly payments for the car loan.
Keep in mind, though, the value MUST support the Sales Price, so artificially increasing the price of a home just to pay concessions is not going to work!
Opinions expressed here are the sole responsibility of the author, and do not necessarily reflect the view of Fairway Independent Mortgage.
Ruth Vogt, Sales Manager
#LMB100023827, NMLSR# 257576
Equal Housing Opportunity.
Regulated by the Division of Real Estate.