On a VA loan, is the seller responsible for all closing costs and the buyer responsible for all mortage points?

Asked by Missa Pooks, Houston, TX Mon Jul 25, 2011

Answers

21
Irenelori, Home Buyer, Ontario, CA
Mon May 11, 2015
Unallowable fees

The VA allows lenders to charge a 1% origination fee, which covers costs involved with originating and processing a mortgage. Lenders can also skip the flat fee and charge in a more piecemeal fashion, but the sum can’t exceed that same 1% of the loan.

Either way, there are some costs that VA buyers aren’t allowed to pay, including a termite inspection fee or a mortgage broker fee. Any other party to the transaction—the lender, the seller or even a real estate agent—needs to cover these kinds of unallowable fees.

But there’s no requirement that the seller automatically cover one of these unallowable fees. It’s just a matter of who cannot pay: the VA buyer.

Closing costs & concessions

Sellers aren’t required to pay anything toward a VA buyer’s closing costs. Who pays what will always be a product of negotiation between buyer and seller.

VA buyers can ask a seller to pay all of their loan-related closing costs, which can include origination fees, mandated inspections and other costs. Contrary to common misconception, there’s no cap.

In addition, sellers can pay up to 4% of the purchase price in “concessions,” which aren’t expressly mortgage-related costs. Concessions can cover things like a buyer’s prepaid property taxes and homeowners insurance—or even paying a buyer’s collections and judgments at closing.

Sellers who leave behind a pool table or some other item of value for buyers count those against the 4% cap on concessions.

A VA buyer can ask a home seller to pay all of their loan-related closing costs and up to 4% of the purchase price to cover other expenses. Whether the seller will part with a dime for these needs is always a matter of careful negotiation.

A real estate agent can play a key role in helping VA buyers get the most from their dollar without jeopardizing a deal.

Reference Link: http://valoanguidelines.org/
5 votes
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Shane Milne, Mortgage Broker Or Lender, Laguna Niguel, CA
Mon Jul 25, 2011
On a VA loan, there are certain costs that the Veteran cannot pay, but any other party to the transaction can pay - including the seller. Those fees the Veteran cannot pay are typically called "non-allowables". The only way to get the seller to pay for the the non-allowables is to negotiate it in the purchase contract. If you and the seller did not both agree that the seller would be paying for the Veteran's non-allowables, then another party (real estate agents, mortgage lender, mortgage broker) will need to pay for them.

Chapter 8 of http://www.benefits.va.gov/warms/pam26_7.asp is the chapter of the VA Lender's Handbook that goes over "Fees and Charges the Veteran-Borrower CAN Pay" and "Fees and Charges the Veteran-Borrower CANNOT Pay"

VA allows a 1% origination fee.

A list of fees that the Veteran typically CANNOT pay, this is *not* all-inclusive:
attorney fees (other than for title), brokerage fees (charged by a real estate agent/real estate broker), prepay penalties, "closing" or "settlement" fees, doc preparation, underwriting, loan application, admin or processing fees, interest rate lock-in fees, notary fees, tax service fees, and termite inspection fee.

Some of those fees still need to be charged though - for example an underwriting fee has to be paid to the lender who is underwriting the loan. So what VA permits is to convert the "non-allowables" to an "origination fee" if it does not exceed 1% (thus the 1% Origination fee that VA allows), which is why often on a VA loan you'll see a higher origination charge when the lender is paying all of the VA non-allowables (vs. a lower origination charge if the seller is paying the non-allowables).

A list of fees the Veteran typically CAN pay, this list is *not* all-inclusive:
appraisal fee, VA compliance inspection fees (if required by the NOV, not if otherwise required by the lender), recording fees, transfer taxes/stamps, credit report fees, pre-paid items (such as pre-paid interest, property tax & homeowners insurance reserves for the escrow account), insurances (flood, homeowners, etc.), well/septic inspection fees, surveys, title insurance/exam/policy, certain endorsements to the title policy, VA funding fee, termite report (on a refinance) amongst others.
2 votes
Lisa Cannata, Agent, Mashpee, MA
Mon Jul 25, 2011
While a down payment is not required on VA loans you will still need funds to cover your closing cost which average 3% - 4% of the loan amount. However, with a va home loan the seller is allowed to pay all of your closing cost up to 6% of the loan amount. So, it is possible to avoid having to come out of your pocket to pay closing cost as well.

Tip: If you have little or no funds available for closing cost, let your realtor know that you are getting a va loan and need the seller to pay as many points as possible towards your closing cost so that he/she can negotiate the best purchase contract on your behalf. 1 point is equal to 1% of the loan amount. So if the home cost $200,000 and your closing cost are $8000, you will want the seller to pay 4 points (4% x $200,000 = $8,000). Using this same example, say you have $4000 of your own funds available for closing cost.. then you will only need the seller to pay 2 points.



Read more: http://www.militaryvaloan.com/va_loan_closing_cost.htm#ixzz1…
2 votes
You can also have the lender contribute to the Buyers closing costs. However, this will increase the interest rate on the Buyers loan.
Flag Thu Apr 4, 2013
Jinyi (jenni…, , Arizona
Mon Jul 25, 2011
On VA loans, buyers cannot pay the following costs:
1. Administration
2. Underwriting
3. Processing
4. Tax service
5. Courier / mail fees
All the rest of the fees can be paid by seller, buyer, real estate agent or lender.
Find an experienced real estate agent. He/she can negotiate a contract that is most advantageous for you.
1 vote
Rudy R. McDo…, Mortgage Broker Or Lender, Bloomfield Hills, MI
Mon Jul 25, 2011
Hi, Missa Pooks

Here is an excert from my blog pertaining to your question:

Unlike FHA and CONV, lenders MAY NOT charge more than the 1% orig fee. Nor can a lender charge any other type of fees pertaining to income to the company or the loan officer.

ALLOWABLE AND UNALLOWABLE FEES. 38 C.F.R. 36.4813 limits the fees that a veteran may pay when obtaining a VA-guaranteed home loan. Veterans may pay a maximum of a one percent origination fee charged by the lender (plus bona fide discount points) as well as reasonable and customary amounts for certain itemized fees.

The following fees are allowable:

- 1% Origination fee based on base loan amount
- Appraisal and Compliance Inspections
- Recording Fees
- Credit Report
- Prepaid Items (Taxes, Assmts,etc)
- Hazard Insurance
- Flood Determination
- Survey
- Title Examination
- Title Insurance
- MERS
- Bona Fide Discount Points
- Special Mailing Fees for refinancing loans

The following list provides examples of items that cannot be charged to the veteran as "itemized fees and charges." Instead, the lender must cover any cost of these items out of its flat fee.

- Lender's appraisal
- Lender's inspection (Excluding new construction loans)
- Loan closing or settlement fees
- Documents preparation fees
- Preparing loan papers or conveyancing fees
- Attorney services other than title work
- Photographs
- Interest rates lock in fees
- postage and other mailings charges, stationery, telephone calls, and other overhead
- amortization schedules, pass books, and membership or entrance fees
- escrow fees and charges
- notary fees
- commitment fees or marketing fees, of any secondary purchaser of the mortgage and preparation and recording of assignment of mortgage to such purchaser
- trustee fees or charges
- loan application or processing fees
- fees for preparing truth in lending statement
- fees charged by loan brokers, finders or other third parties whether affiliated with the lender or not, and
- tax services fees

I hope this helps.
1 vote
John Burke, Mortgage Broker Or Lender, Austin, TX
Mon Jul 25, 2011
Hi Missa Pooks,

No, but there are certain closings costs that a Veteran can not pay so they are usually paid by either the seller through seller concessions or by the lender.
1 vote
Carolyn Wolfe, Agent, Houston, TX
Mon Jul 25, 2011
Lisa's answer is good, but do remember that you are in essence asking the seller to go down on the price when you are asking for a Seller's Contribution. You need to have your Realtor in contact with your VA lender to make sure they know what things are allowable to be paid by the VA and what items must be paid by the buyer and the seller. I have a chart of those little items if you like.
Contgradulations on getting your VA loan, it is the best deal out there for our military families.
Feel free to contact me if you need help finding the perfect home for your family....
1 vote
Please send a copy of that chart to drcindyhardy@me.com. I am looking to use my VA home in 2 months.
Flag Sat Feb 13, 2016
please send va chart to bigjim3708@msn.com
Flag Sun Apr 27, 2014
Please send your VA chart to coty95@yahoo.com. Is it current as of 2013?
Flag Sat May 4, 2013
Deborah Stru…, Agent, Houston, TX
Mon Jul 25, 2011
Hi Missa,

VA is great way to go if you are eligible. The easiest way to use it is to buy a new home since most builders are willing to pay most if not all of the closing costs.

If you need any help, please feel free to contact me at 713-254-2806.

Thanks,
Debbie
1 vote
Does the seller pay for pest inspections with VA loans? Also, if the pest inspector finds termite or other pest damage, can the buyers pay for this or are only the sellers allowed to pay? Can the buyers pay for the termite treatment, or is this a cost only the sellers can pay under VA guidelines.
Flag Wed Oct 16, 2013
Peter.krop, Home Buyer, Houston, TX
Wed Sep 13, 2017
what is sellers responsibility on repairs after inspection ?
0 votes
Dana Anghel, , South Jordan, UT
Mon May 5, 2014
The seller is only responsible for whatever they agree to be responsible (regardless of the loan type). There are certain fees that the VA will not allow to be charged to the borrower, and they were mentioned in the other answers. One such fee to mention is the termite inspection, which is required by lenders. What will happen is: either seller agrees to pay it or you agree to pay it out of pocket (so it is not on the final HUD statement).
It can also be apid by the lender, using the yield spread premium (also known as lender credit) - this is what also pays for the unallowable underwriting fee, processing fee, etc (all part of obtaining a loan)
In conclusion, the unallowable fees are still there, and are still getting paid, it's only a matter of how they are structured for the VA.
One more piece of regulation that creates the illusion of protecting the borrower, but really does nothing. Imagine getting a loan when you have no underwriter, because they can't charge for their work..
0 votes
Walkerschoic…, Home Buyer, Houston, TX
Mon Jan 20, 2014
I have a Seller who is giving a closing cost credit to the Buyer. The contract does not state that the Seller agrees to pay for the termite report. Therefore I charged the Seller and deducted the charge out of the closing cost credit. This is how we always did it from the state I came from. Not sure if they do that here? Is this proper?
0 votes
Rubina Hartu…, Agent, Glendale, AZ
Sun Sep 1, 2013
missa, it depends the state you are purchasing or selling your property. in general there are non-alowable escrow closing costs that seller or lender has to pay and buyer to pay his/her alowable closing costs. the best is to call a VA loan agent and get a seller to pay list in your state.
0 votes
Shane Milne, Mortgage Broker Or Lender, Laguna Niguel, CA
Sun Nov 18, 2012
ocac - the seller isn't responsible for any of the Veteran's closing costs. There are only costs that the Veteran cannot pay, so they have to be paid by another party to the transaction (seller, the lender or the real estate agents).

Shane Milne | Lending in all 50 states | NMLS #81195
0 votes
This is just not true in real life. Lender will never pay and a poor realtor would have to work for no commission? Be realistic, the Seller would have to pay.
Flag Mon Jun 10, 2013
ocac, Home Seller, Houston, TX
Sat Nov 17, 2012
What percentage is that equal too?
0 votes
ocac, Home Seller, Houston, TX
Sat Nov 17, 2012
What percentage of the closing cost is the responsibity of the seller on a house selling for 135,000.
0 votes
Jim Manning, , Texas
Mon Jul 25, 2011
Could be lender specific but that is not a specific guideline. BTW: Great answers here.
0 votes
..., , Lexington, MA
Mon Jul 25, 2011
In addition to everything already said, the lender can also contribute to closing costs. If the veteran has a service-related disability all or part of the VA funding fee could be waived - meaning you will need to finance less as that is not paid at closing.

Good luck!

Tom
0 votes
Tom Burris, Mortgage Broker Or Lender, Dallas, TX
Mon Jul 25, 2011
Missa,
I do not know who told you that. But it is false.
Lots of good answers below
0 votes
Mark McNitt, Agent, Houston, TX
Mon Jul 25, 2011
Missa,

First of all...THANK YOU for you or your family member serving our great country. I appreciate it greatly!!

Now, to answer your question. On a VA loan, there are a few items the seller is required to pay, but the real question is what CAN the seller pay for in regards to the buyers closing cost, point, etc. If I'm not mistaken, the seller can pay up to 6% of the sales price to cover many of those items. I understand the mortgage insurance premium is a one time fee and has to be paid at closing...this could be upto 3% of the sale price by itself.

Many VA buyers I have worked with and come to closing with no money and the seller paying most of the buyer's closing cost. The trade off was the buyer purchased the home at full price or slighly above. As long as the home appraises....it typically works out for both sides. As always, you have to work out the details with the seller and it would be a good idea to get with a lender that works VA loans. I have some on my web site if you are looking for a loan officer.

Good Luck!

Mark McNitt
Bernstein Realty
m# 832-567-4357
0 votes
Krystal Vill…, Agent, Houston, TX
Mon Jul 25, 2011
Missa,

In my experience, closing costs including "pre-paids" such as homeowner's insurance and property taxes usually total close to 6%. If you are trying to come out of pocket the least amount possible, I would suggest getting with your lender and obtaining a Good Faith Estimate prior to making an offer on the home you decided to make an offer on. This will take into consideration all costs administered by your particular lender, the actual costs for taxes and insurance, and it should give you a very close estimate on what your final closing costs will be. That will help you and your agent to determine the best strategy for making the best offer for your situation. If you are not working with either a lender, and agent, or both, I would be happy to answer any other questions you have. Thank you, and congratulations on moving forward with home ownership.


Truly,

Brandon Newton
Green Dawn Realy
713.890.9108
0 votes
Nancy W. Sua…, Agent, Houston, TX
Mon Jul 25, 2011
Missa Pooks,
Thanks for your inquiry about VA loan in the Clear Lake Area! If you haven't talked with a loan officer who is proficient in processing VA loans, please let me know. This would be my advise to get your elibigility certificate which can take some time. If you have already done this that is great! If you are not working with an agent at this time, please contact me at the information below or visit my website.
I have helped several clients who used their VA certificates to obtain loans. Underwriting laws changed over the past few years. You should ask specific questions to your lender if you have already made a commitment through a mortgage company.
Your costs are expected to be covered by yourself except for those that VA will require the seller to cover, these are general fees included in your total costs. Estimates would be about $1200 minimum on a loan, so check with lender about those that you are not allowed to pay. These are usually specified in a contract for purchase of a property.
Points are generally not an issue, unless you are buying down the rate to obtain a lesser interest obligation to reduce your monthly payment of principal and interest.
You can ask for seller to cover more costs if that is needed to enable your financial situation and affordability of a home you will purchase. Each transaction on each property would be unique and would be dealt with when you are selecting your home to purchase.

I would love to visit with you more about your specific needs in a home.

Look forward to helping you soon.
Nancy Suarez
832-415-4753
0 votes

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