VA Closing Costs and Seller Concessions Explained

A VA loan may allow an eligible buyer to purchase without a down payment, but the transaction still has closing costs.

The buyer may pay some expenses, the seller may pay some, and the lender may offer a credit. VA also limits certain charges and treats ordinary closing costs differently from seller concessions.

Those categories are easy to blur together. A clear Loan Estimate should show who is paying each item and whether the cost is permitted.

What a VA buyer may still pay

Common buyer expenses can include:

• The VA appraisal
• Credit-report charges
• Title search and title insurance
• Recording fees
• Survey charges where applicable
• Homeowners and flood insurance
• Prepaid interest
• Tax and insurance escrow deposits
• Discount points
• The VA funding fee when not exempt
• Permitted lender and settlement charges

The buyer may also pay for a home inspection, pest inspection where permitted, moving expenses, and repairs outside the financed transaction.

Zero down describes the required equity contribution. It does not mean the buyer should arrive with no available cash.

VA limits the borrower’s charges

VA’s fee rules are designed to protect eligible borrowers from certain excessive or prohibited charges.

The lender may charge a flat origination fee of up to 1 percent of the loan amount, or use itemized fees allowed under VA rules. The lender generally cannot combine the full 1 percent fee with additional itemized lender charges that VA treats as covered by that fee.

Which items are permissible can depend on who performs the service, local law, and whether VA has approved a state deviation.

This is a policy-heavy area. A borrower should not rely on a generic internet list that says “Veterans never pay underwriting” or “the seller must pay every lender fee.”

Ask the lender to identify each charge and the VA authority or state deviation supporting it.

Ordinary closing-cost assistance is not the same as a concession

VA distinguishes between the seller paying normal closing costs and providing concessions that give the buyer an additional financial benefit.

Normal closing costs can include items such as title charges, recording fees, discount points, and prepaid expenses that are customary in the transaction.

Seller concessions can include:

• Payment of the VA funding fee
• Payment of prepaid property taxes and insurance
• Temporary interest-rate buydowns
• Payment of certain debt or credit balances for the buyer
• Gifts or items of value that are not ordinary closing costs

VA generally limits seller concessions to 4 percent of the property’s reasonable value.

That 4 percent limit does not automatically include every normal closing cost the seller agrees to pay. This is why a seller may sometimes pay ordinary closing costs plus concessions, subject to the contract, appraisal, lender review, and VA rules.

A concession cannot hide an inflated price

The seller may agree to a generous credit, but the property still has to support the price.

Suppose a home is worth $300,000, but the contract is raised to $312,000 solely so the seller can give the buyer $12,000 back.

The VA appraiser develops an independent opinion of value. The lender cannot finance unsupported value just because the parties wrote it into the contract.

If the appraisal supports only $300,000, the parties must address the difference. The VA escape clause and low-appraisal options may become important.

Unused seller credit usually does not become cash

A buyer cannot ordinarily pocket an unused seller credit.

If the contract allows up to $10,000 and final eligible costs total $7,500, the extra $2,500 generally cannot be handed to the borrower for furniture or personal use.

Before closing, the parties may be able to revise the structure by reducing certain costs, adjusting discount points, or renegotiating the price, subject to lender and contract approval.

Do not wait until the final Closing Disclosure to discover that the credit is larger than the eligible expenses.

Lender credits have a tradeoff

A lender credit can reduce cash due at closing. It often comes with a higher interest rate.

Ask for a side-by-side comparison showing:

• Interest rate
• Annual percentage rate
• Principal-and-interest payment
• Lender credit
• Discount points
• Total cash to close

A credit can be useful when preserving cash is the priority. It is not free money if it increases the payment or long-term interest.

The funding fee is a separate decision

Borrowers who are not exempt can generally pay the VA funding fee in cash, finance it, or have the seller pay it as a permitted concession.

Financing increases the loan balance. Paying it in cash uses funds that might otherwise remain as reserves. Seller payment must fit the negotiated transaction and concession limit.

Review VA funding-fee exemptions and financing before choosing the option.

Earnest money is not automatically lost

Earnest money is credited in the final settlement calculation when it is properly documented.

The lender may request:

• The purchase agreement
• Proof the deposit cleared
• A bank statement showing the withdrawal
• The escrow-holder’s receipt
• Documentation of any gift source

If credits and financing cover the full eligible cash requirement, the borrower may receive a return of documented earnest money or other eligible prepaid amounts at closing. That is reimbursement of the borrower’s own verified funds, not prohibited cash back.

Seller-paid repairs are not always concessions

A seller can agree to repair the property before closing. The treatment depends on the contract and whether the repair is part of delivering the property in acceptable condition.

A repair escrow, cash allowance, or payment made for the buyer’s benefit can require additional analysis.

The lender must make sure the buyer is not receiving cash or personal property outside the approved transaction.

When the appraisal requires work, coordinate the repair terms with the lender. The VA appraiser or staff appraisal reviewer may require completion evidence before the Notice of Value conditions can be cleared.

State and local practices vary

Who customarily pays title insurance, transfer taxes, attorneys, surveys, or pest inspections varies by location.

VA also maintains state fee and charge deviations. A fee allowed in one state may be handled differently in another.

The closing agent, lender, and real estate professionals should apply the rules for the property’s location. A social-media closing-cost list from another state may be useless.

A practical offer example

A buyer offers $325,000 and requests that the seller pay up to $9,000 toward eligible closing costs and prepaid expenses.

The lender estimates actual costs at $8,200. The appraisal supports the contract price.

At closing, the seller can pay the eligible $8,200 under the contract. The remaining $800 is not automatically paid to the buyer.

If the buyer is not exempt from a funding fee and the contract permits, the parties might use part of the available credit toward that fee, subject to VA’s concession rules. Another option may be discount points, if the pricing and lender approval make sense.

The important part is that the credit pays documented, eligible expenses and the price remains supported.

What to ask your lender

• Which fees am I permitted to pay under VA rules?
• Are you charging the 1 percent origination fee or itemized lender charges?
• Which seller-paid items count toward the 4 percent concession limit?
• How much of the requested seller credit is likely to be used?
• Can the seller pay the funding fee?
• What rate tradeoff comes with the lender credit?
• Which state fee deviations apply?
• How will earnest money and prepaid costs be credited?
• What happens if the appraisal is below the contract price?

Frequently asked questions

Can the seller pay all VA closing costs?

The seller may pay many eligible closing costs, but the exact structure must follow VA rules, the contract, and the lender’s review. Concessions are generally limited to 4 percent of reasonable value.

Is the 4 percent limit applied to every seller-paid cost?

No. VA distinguishes ordinary closing costs from seller concessions. Ask the lender to classify the specific items.

Can the seller pay off my credit card?

Payment of certain borrower debts can be treated as a seller concession and must fit VA’s rules and the 4 percent limit. It is not ordinary closing-cost assistance.

Can I receive unused credit as cash?

Generally no. Credits must be applied to eligible expenses. Documented reimbursement of the borrower’s own eligible prepaid costs is different.

Does zero down mean no closing costs?

No. Buyers can still owe settlement charges, prepaid expenses, escrow deposits, inspection costs, and the funding fee when not exempt.

VA closing costs are manageable when the offer is built around verified numbers. Have the lender classify the seller credit, estimate actual eligible expenses, and show the rate tradeoff for any lender credit before the contract becomes difficult to change.

Official Sources and Further Reading

• VA funding fee and loan closing costs
• VA Lender’s Handbook
• VA lender resources and state fee deviations
• CFPB guide to the Loan Estimate

This article is general mortgage education. Loan Under Review is not a lender and does not provide financial, legal, lending, or appraisal advice. Program rules and lender requirements can change, and lenders may apply additional requirements.