On a VA loan, seller concessions are capped at 4% of the property's established reasonable value. The seller paying normal closing costs and market-normal discount points does not count toward that cap.
Closing costs and seller concessions get mixed up constantly, and the mix-up can break an offer. On a VA loan they are two separate buckets with different rules. One has no cap. The other is capped at 4%.
Every rule below is taken from the VA's own text, with the source named, so you can check it yourself.
What is the difference between closing costs and seller concessions?
A closing cost is a normal fee that comes with doing the loan and the sale, and the VA lets the seller, the lender or any other party pay it for you. A seller concession is something the seller adds that is not customary, and it counts toward the 4% cap.
Closing costs include title, recording, the appraisal and the lender's charge.
A seller concession is something different. The VA Lenders Handbook (VA Pamphlet 26-7, Chapter 8, Topic 5) defines it as anything of value added to the transaction by the builder or seller, for which the buyer pays nothing additional, and which the seller is not customarily expected or required to pay or provide.
The handbook's list of concessions includes, but is not limited to:
- Payment of your VA funding fee
- Prepayment of your property taxes and insurance
- Gifts, such as a television or a microwave
- Extra points paid for a permanent interest rate buydown
- Escrowed funds that pay for a temporary buydown
- Payoff of your credit balances or judgments
The handbook then adds the line most people miss: seller concessions do not include payment of your closing costs, or payment of points as appropriate to the market.
What closing costs can a veteran be charged on a VA loan?
Under the handbook (Topic 2) and 38 CFR 36.4313, a veteran on a VA loan can pay reasonable and customary amounts for a short list of itemized fees, plus the lender's flat charge, plus reasonable discount points. The VA limits everything else.
In detail, you can pay reasonable and customary amounts for a short list of itemized fees, plus the lender's flat charge, plus reasonable discount points.
Itemized fees you can be charged
- VA appraisal and compliance inspection fees
- Recording fees and recording taxes
- The credit report
- Your share of current-year taxes and the initial tax and insurance deposit
- Required hazard insurance, including flood insurance if required
- A flood zone determination, only if a third party guarantees it
- A survey, if the lender or you require one
- Title examination and title insurance
- The VA funding fee, unless you are exempt
- The MERS fee
- Other fees the VA specifically authorizes as local variances
When a third party does the work, the lender can charge you only that third party's actual cost. A $30 credit report is $30, not $35.
The lender's 1% flat charge
On top of those itemized fees, the lender may charge a flat charge of no more than 1% of the loan amount. The handbook says it covers all of the lender's costs and services that are not reimbursable as itemized fees. The 1% is figured on the principal after the funding fee is added, if the fee is financed. IRRRLs use a worksheet instead.
Fees you cannot be charged
The handbook says the lender must cover these out of its flat charge, not bill them to you:
- The lender's own appraisals and inspections
- Loan closing or settlement fees
- Document preparation and conveyancing fees
- Attorney services other than title work
- Interest rate lock-in fees
- Postage, stationery, phone calls and other overhead
- Escrow fees, notary fees and trustee fees
- Loan application and processing fees
- Truth-in-lending disclosure preparation
- Fees from loan brokers, finders or other third parties
- Tax service fees
One carve-out: you can hire your own attorney and pay for it, as long as the closing documents show it is your independent arrangement and not a lender charge.
What counts toward the VA 4% seller concession limit?
On a VA loan, the seller paying your funding fee, prepaid taxes and insurance, debt payoffs, gifts or buydown costs counts toward the 4% limit. Your normal closing costs and market-normal discount points do not.
The rule, in the handbook's words: any seller concession, or combination of concessions, that exceeds 4% of the established reasonable value of the property is excessive and unacceptable for VA-guaranteed loans. The handbook also says to leave normal discount points and payment of the buyer's closing costs out of the total.
| Item the seller pays | Counts toward the 4%? |
|---|---|
| Your VA funding fee | Yes |
| Prepaid property taxes and insurance | Yes |
| Payoff of your debts, credit balances or judgments | Yes |
| Gifts (TV, appliances) | Yes |
| Escrow for a temporary buydown | Yes |
| Extra points for a permanent buydown | Yes |
| Your normal closing costs | No |
| Discount points normal for the market | No |
| Points beyond what the market calls for | The excess counts |
| Buyer-broker charges the seller pays | No, per VA Circular 26-24-14 |
The handbook does not publish a table of what a "normal" number of points is. Your lender decides that for your loan, so ask early.
The cap is figured on reasonable value, not the contract price
The handbook says "established reasonable value of the property." That is the value from the VA appraisal, shown on the Notice of Value. Many guides online say 4% of the loan amount or of the price. The handbook language does not say that, so go by the appraised reasonable value.
When the appraisal matches the price, the two numbers are the same. They split when the appraisal comes in low, which we cover below.
Example: $800,000 reasonable value
This is a hypothetical for illustration, not an offer or a quote. Say the contract price and the reasonable value are both $800,000, you are a first-time VA user with no down payment, and you are not exempt from the funding fee.
- Cap: 4% of $800,000 = $32,000
- Funding fee at 2.15% (first use, under 5% down) = $17,200
- Prepaid taxes and insurance = $5,500
- Escrow for a temporary buydown = $7,000 (an assumed amount; real cost depends on the structure and your lender)
- Counted total = $29,700, which is under the cap with $2,300 to spare
The seller can also pay $14,000 of normal closing costs: title, escrow, recording and the lender's 1% charge. Those do not count. The seller's total credit in this deal is $43,700, which is more than 4% of the price, and it is still allowed, because only $29,700 of it is a concession.
Now add a $5,000 payoff of one of your collections. The counted total becomes $34,700, which is $2,700 over the cap. The deal has to be restructured before closing: trim the buydown, drop the payoff, or move a cost back to you. If you are exempt from the funding fee, the $17,200 line disappears and you have far more room.
How can I use seller concessions on a VA loan?
Veterans most often use VA seller concessions to pay the funding fee, prepaid taxes and insurance, a buydown or a debt payoff. Each counts toward the 4% limit, so the right mix depends on your cash needs and your file.
- The funding fee. Paying it from a concession keeps it out of your loan balance. Funding fee percentages and exemptions are on our VA loan page.
- Prepaids. Taxes and insurance deposits can eat a lot of cash at closing, and they are common concessions.
- A seller-paid buydown. A temporary buydown lowers your payment in the early years, funded by money in escrow. A permanent buydown uses extra points. Both count toward the 4%. To see how a buydown changes a payment, use the VA loan buydown calculator.
- Debt payoff. If a collection or judgment is blocking approval, a seller payoff counts as a concession. Our guide on a VA loan with a 580 credit score explains how underwriters look at credit.
Check your payment with the VA loan payment calculator before you decide which credits matter most.
Two cautions. The VA says the point of the cap is to keep concessions from enticing veterans into loans they cannot afford, or from hiding an inability to qualify. And some lenders set stricter internal rules than the VA, so ask yours how it counts each item.
Can I pay my buyer's agent on a VA loan?
Yes, in some areas. VA Circular 26-24-14 lets a veteran pay reasonable and customary buyer-broker charges, including commissions, when the home is in an area that meets the conditions below. A seller paying them does not use up any of the 4%.
For years the handbook said a veteran may not, under any circumstances, be charged a real estate brokerage fee or commission. That text is still in Chapter 8, Topic 3. It is out of date on this point.
On June 11, 2024 the VA issued Circular 26-24-14, a temporary local variance that lets a veteran pay reasonable and customary buyer-broker charges, including commissions, when the home is in an area where:
- Listing brokers are prohibited from setting buyer-broker compensation through multiple listing postings, or
- Buyer-broker compensation cannot be established by or flow through the listing broker
The circular took effect August 10, 2024. It is valid until rescinded, and the VA's circulars page still lists it, with Change 1, as valid as of October 9, 2026. The VA says it plans a more permanent policy through rulemaking, so check status before you rely on it.
The conditions that matter to you:
- Buyer-broker charges cannot be part of the loan amount. You pay them from your own funds, and they count when the lender checks that you have enough liquid assets to close.
- Change 1 says the amount you pay goes in section H of the Closing Disclosure.
- The buyer-broker agreement is part of the sales contract package, so your lender uploads it with the appraisal request.
- The seller can still pay your buyer-broker charges. The VA says it does not treat that as a seller concession, so it does not use up any of the 4%.
Ask your lender whether your property and your area meet the conditions. Do not assume.
What happens to the 4% cap if the VA appraisal comes in low?
The 4% cap on a VA loan follows the reasonable value, so a low appraisal lowers the cap in dollars. If you contract at $800,000 and the VA value comes in at $780,000, the cap drops to $31,200, and the seller credits already in your contract may now be over it.
The handbook says you can pay for a second appraisal when you request a reconsideration of value. Beyond that, the common paths are renegotiating the price, covering the gap in cash, or walking away if your contract lets you. Your agent and lender should walk you through which fits.
How do I write seller concessions into a VA offer?
Write the seller credit as a dollar figure, keep normal closing costs separate from concessions in your planning, and have your lender run the numbers before you submit. The steps are below.
- Ask for the amount, not a list. Write the seller credit as a dollar figure and let your lender allocate it. That keeps you from locking into line items that change.
- Split closing costs from concessions in your own planning. Know which credits are normal closing costs and which are concessions, so you know how much of the 4% you have used.
- Have your lender run the numbers before you submit. A quick check against your expected reasonable value avoids a restructure after the appraisal.
- Be realistic about the market. In a hot market sellers may refuse credits. A clean offer without them can beat a bigger offer with them. In California, ask your agent what sellers in your price range are accepting.
- Expect disclosure. Every seller credit and buyer-paid charge appears on your Closing Disclosure. The CFPB's Closing Disclosure explainer shows where to look.
If you are buying for the first time, our first-time homebuyer page covers the full process. You can also read about Renaldo Wilson, who wrote this guide.
Who can check my VA seller credits before I make an offer?
Veterans Direct Mortgages can check your seller credits against your expected reasonable value and show you how much of the 4% you would use before you write the offer. Get pre-approved here or call us at (888) 957-8387.
