When it comes to discounts, everybody would like a little bit more. That’s just the way it works in commerce and business, and it’s also true when it comes to VA loans.
The good news is that the VA rules allow concessions and contributions which are worth as much as 8 percent of the property’s appraised value. Whether a VA borrower can get some or all of such discounts depends on the bargaining process and the desire of the owner to move a property.
The VA has many rules and regulations designed to protect vets and their families including the opportunity to obtain large discounts from home sellers in two ways: with concessions and with contributions. Here’s how it works.
The VA says that “a seller concession is anything of value added to the transaction by the builder or seller for which the buyer pays nothing additional, and which is not considered customary.” As much as 4 percent of the property’s appraised value can be applied to such costs as:
- Payment of the veteran’s VA funding fee
- Prepayment of the veteran’s taxes and/or insurance
- Gifts such as TVs or appliances
- Payment of extra points beyond what current market conditions dictate
- Provision of escrowed funds to provide temporary interest rate buy-downs
- Payoff of credit balances or judgments on behalf of the buyer
In addition to concessions the VA also allows vets to get seller “contributions” worth as much as 4 percent of the property value. The VA says contributions can be used to offset:
- The payment of VA allowable closing costs above 4 percent seller concession amounts for such costs as the appraisal, credit report, recording fees and taxes, title work, origination fee, etc.
- The payment of points as appropriate to the market.
Why would any seller would pay such huge discounts to a VA borrower? In some cases there are owners and builders who have a need to sell as quickly as possible. Combine that need with a weak local housing market or perhaps a few foreclosures down the street and the idea of big discounts suddenly seems like nothing more than a marketing tool, something no different than the discounts found at local shopping malls.
In most cases discounts will be smaller than the maximum allowed under VA rules, but a discount of any size is better than no discount.
To find out more speak with your VA lender before house shopping. Knowing the rules in advance can help you get a better deal, perhaps thousands of dollars better.
Photo courtesy SeeMidTN.com (aka Brent)