I hear this one all the time.

“The seller can only pay 4% on a VA loan.”

No.

That's not how the rule works.

And when loan officers or real estate agents don't understand the difference between seller-paid closing costs and seller concessions, Veterans can leave thousands of dollars on the table.

The VA benefit gives buyers some pretty damn good options.

You just have to understand how to use them.

WHAT CAN A SELLER PAY ON A VA LOAN?

Potentially quite a bit.

VA allows sellers and builders to provide credits that cover some or all of a buyer's allowable closing costs.

That can include things like loan origination charges, discount points, the VA appraisal, title-related costs, recording fees, taxes and other allowable expenses associated with closing the loan.

Then there are seller concessions.

And that's where everybody starts throwing around the 4% number.

They're not the same thing.

WHAT IS THE VA 4% SELLER-CONCESSION RULE?

VA limits seller concessions to no more than 4% of the home's established reasonable value.

But here's the important part:

Normal payment of the buyer's closing costs isn't included in that 4% calculation.

Neither are normal discount points.

That's straight out of the VA Lender's Handbook.

So when somebody tells a Veteran:

“The seller can only contribute 4%.”

They're oversimplifying the rule.

Sometimes by a lot.

WHAT ACTUALLY COUNTS AS A SELLER CONCESSION?

A seller concession is essentially something of value being provided to the buyer beyond ordinary closing-cost assistance.

Examples can include:

• Paying the buyer's VA funding fee

• Paying certain debts or credit balances

• Prepaying certain expenses such as hazard insurance

• Funding a temporary interest-rate buydown

Those types of concessions are generally subject to the 4% limitation. VA's current guidance specifically identifies funding-fee credits, debt payoff and prepaid hazard insurance as examples of concessions. VA also says a seller- or builder-funded temporary buydown counts as a seller concession.

WHAT DOESN'T COUNT TOWARD THE 4% LIMIT?

This is the part people screw up.

Normal seller-paid closing costs aren't automatically part of the 4% seller-concession bucket.

VA's Lender's Handbook specifically says not to include normal discount points or payment of the buyer's closing costs when determining whether concessions exceed 4%.

That distinction can create considerably more flexibility than people realize.

Instead of asking:

“Can the seller pay 4%?”

The better question is:

“What costs are we trying to cover, and how does VA classify them?”

That's a very different conversation.

CAN THE SELLER PAY THE VA FUNDING FEE?

Yes.

If you're required to pay a VA funding fee, another party can pay it for you.

That can include the seller.

The important distinction is that seller payment of the funding fee is considered a seller concession, meaning it counts toward that 4% concession limit.

And remember, some Veterans are exempt from paying the VA funding fee altogether.

That's why you don't structure the damn loan until you know the Veteran's actual situation.

CAN A SELLER PAY FOR A RATE BUYDOWN?

Yes, but we need to distinguish between different types of buydowns.

VA permits temporary buydowns funded by the seller, lender, builder or Veteran.

When the seller or builder funds a temporary buydown, VA treats that contribution as a seller concession subject to the 4% limit. The Veteran still has to qualify using the full payment that applies after the temporary buydown expires.

Permanent discount points can also be part of the negotiation. Discount points that are appropriate to the market generally aren't treated as seller concessions, while points paid beyond what is customary for the market may count toward the 4% concession limit.

Again:

Details matter.

CAN SELLER CONCESSIONS HELP A VA BUYER BRING LESS CASH TO CLOSING?

Absolutely.

That's one of the reasons understanding the rules matters.

A qualified Veteran may already be purchasing with no required down payment. VA also doesn't require monthly private mortgage insurance on a VA-backed purchase loan.

Now combine that with properly structured seller-paid closing costs or concessions.

Depending on the transaction, that can significantly reduce how much cash the Veteran needs at closing.

That doesn't mean every Veteran should structure a purchase that way.

It means they have options.

Options are the entire damn point.

SHOULD YOU ALWAYS ASK FOR THE MAXIMUM SELLER CONTRIBUTION?

No.

This isn't Monopoly money.

The purchase price, appraisal, market conditions, seller motivation, interest rate, monthly payment and overall economics of the deal still matter.

Getting $10,000 from a seller isn't automatically a great deal if you overpaid $20,000 for the house to get it.

Sometimes using seller money for closing costs makes sense.

Sometimes buying down the rate makes sense.

Sometimes negotiating the price makes more sense.

Sometimes you need a combination.

Run the numbers.

WHAT SHOULD REAL ESTATE AGENTS KNOW?

Stop treating VA buyers like they're handicapped in a negotiation.

They're not.

A properly structured VA offer can give the buyer and seller plenty of flexibility.

And understanding the difference between closing-cost credits and seller concessions matters when you're writing or negotiating the contract.

The VA program also continues to allow negotiation around buyer-agent compensation under its current framework, so agents working with Veterans need to understand the actual rules instead of operating on old assumptions.

The Veteran shouldn't lose a house because somebody involved in the transaction doesn't understand VA financing.

THE BOTTOM LINE

The VA seller-concession rule isn't:

“The seller can only pay 4%.”

That's the lazy explanation.

The actual rules distinguish between ordinary seller-paid closing costs and seller concessions subject to the 4% limit.

That difference matters.

It can affect cash to close.

It can affect rate strategy.

It can affect negotiations.

And it can affect whether a Veteran gets the deal done at all.

I've closed more than 500 VA loans.

One of the biggest things I've learned is that the VA benefit usually isn't the problem.

People not understanding the VA benefit is the problem.

HAVE A VA LOAN QUESTION?

Buying a house with your VA benefit?

Already under contract?

Trying to figure out seller credits?

Or did somebody tell you the seller is limited to 4% and you're wondering if that's actually true?

Send me the scenario.

I'll look at the numbers and tell you what actually makes sense.