Closing costs can add up fast. The good news for veterans is that a seller can often help pay them.
On a VA loan, the seller can pay all of your allowable closing costs. On top of that, the seller can add up to 4% in extra help. Many agents and lenders mix these two up, and it costs buyers money. This guide explains the VA seller concessions limit in plain language, with examples for both buyers and sellers.
What is the VA seller concession limit?
The VA limits seller concessions to 4% of the home’s reasonable value. You can find that value on the VA Notice of Value that your lender gives you after the appraisal.
Here is the key point: the 4% limit does not cap everything a seller can pay. It only applies to concessions. The VA states it plainly on VA.gov: it allows sellers or builders to offer credits to cover some or all of a buyer’s closing costs, it does not limit credits for a loan’s closing costs, and it limits seller concessions to no more than 4% of the home’s reasonable value.
Closing costs vs. seller concessions
Think of two separate buckets.
Bucket 1: Closing costs | Bucket 2: Seller concessions | |
What it is | Normal fees tied to getting and closing the loan | Extras the buyer would not normally pay |
VA limit | None | 4% of the home’s reasonable value |
Examples | Title insurance, appraisal fee, credit report, recording fees, loan origination fee | Paying your VA funding fee, paying off your debts, prepaying your hazard insurance |
A seller can often pay all of bucket 1 and then still offer up to 4% from bucket 2.
What counts toward the 4% limit?
The VA defines a concession as anything of value added to the transaction at no additional cost to the buyer. The VA lists these examples:
- A credit for the VA funding fee
- Paying off the buyer’s debts
- Prepayment of the buyer’s hazard insurance
Your lender may also count other items, such as a temporary interest rate buydown paid by the seller or builder. Ask your lender to list exactly what counts on your loan.
What does not count toward the 4% limit?
Standard closing costs that the buyer and seller negotiate do not count toward the 4%. The VA lists these as costs a buyer and seller can negotiate:
- Commission and fees for your real estate professional
- Loan origination fee
- Loan discount points
- Credit report and any credit balances or judgments
- VA appraisal fee
- Hazard insurance and real estate taxes
- State and local taxes
- Title insurance
- Recording fee
Your lender will confirm how each item is treated, since lenders have their own rules on top of the VA’s.
A simple example
Say your home’s reasonable value on the VA Notice of Value is $400,000.
- Bucket 1: The seller can agree to pay your allowable closing costs, with no VA cap on that part.
- Bucket 2: The seller can also offer concessions up to 4% of $400,000, which is $16,000.
If the seller pays your VA funding fee, that counts toward the $16,000. On a first use purchase with no down payment, the fee is 2.15% of the loan. On a $400,000 loan, that is $8,600. That would use about half of the concession room. See the full numbers in our VA funding fee chart.
How seller concessions work in an offer
- Ask your lender first. Find out what your loan allows and what you need.
- Write it into your offer. The contract should state the credit amount and what it covers.
- The appraisal sets the limit. The 4% is based on the VA reasonable value, so wait for the Notice of Value to confirm the exact number.
- Your lender checks the math. If total concessions go over the limit, the loan cannot close as written, so the offer has to be adjusted.
- It shows on your closing paperwork. Credits appear on your Closing Disclosure.
Concessions are negotiated, not automatic. A seller does not have to agree.
Tips for veteran buyers
- Ask for closing costs first. Since normal closing costs have no VA cap, start there.
- Save your 4% for extras. Use it on the funding fee, a rate buydown, or other costs outside bucket 1.
- Balance credits with competition. In a busy market, a big credit request can make your offer less attractive. Your agent can help you balance price and credits.
- Compare a credit to a lower price. A lower price reduces your loan amount, while a credit reduces your cash at closing. Ask your lender to show both.
- Check the appraisal. If the home appraises low, the 4% limit and your loan amount change.
Tips for sellers
If you are selling to a veteran, here is what to know:
- You can say yes to a lot. The VA does not limit how much you pay toward normal closing costs.
- Know your net. Before you agree, ask your agent to show your net proceeds with the credits included.
- Consider price and credits together. A higher price with a credit can sometimes net the same as a lower price with no credit. Run both.
- Do not exceed the limit. If concessions go over 4%, the loan cannot be approved as written.
- Ask the buyer’s lender early. A lender who knows the VA rules can tell you what the loan allows before you counter.
Selling and need help comparing offers? Our team can walk you through it. See our Re-List Roadmap to learn how we help sellers.
Builders and new construction
The VA also allows builders to offer credits to cover a buyer’s closing costs. Many builders offer closing cost help or rate buydowns. A paid funding fee or a rate buydown counts toward the 4%.
Builders may tie their best incentives to their preferred lender, so compare a quote from an outside VA lender before you decide. Learn more in Builder Incentives Explained and Can You Use a VA Loan for New Construction?
Common mistakes to avoid
- Mixing up the two buckets. Many people think the 4% caps everything. It does not.
- Forgetting the funding fee counts. If the seller pays it, it uses part of your 4%.
- Assuming 4% of the price. The VA bases it on reasonable value, not the contract price.
- Not asking early. Talk to your lender before you write your offer.
- Skipping the written terms. Credits need to be in the contract.
Frequently asked questions
The VA limits seller concessions to 4% of the home’s reasonable value. This does not limit the seller paying your normal closing costs.
Often, yes. The VA does not limit credits for a loan’s closing costs. Your lender will confirm what is allowed on your loan.
No. The 4% applies only to seller concessions, such as a paid funding fee, debt payoff, or prepaid hazard insurance. Normal closing costs are separate.
Yes, but it counts as a concession, so it uses part of the 4%.
The VA bases it on the home’s reasonable value from the Notice of Value, which your lender provides. Always confirm the exact amount with your lender.
Yes. The VA allows sellers and builders to offer credits. A paid funding fee or rate buydown counts toward the 4%.
You usually do not need a down payment with a VA loan, but if you plan to put money down, ask your lender how credits can be used. Rules vary by lender.
