Debunking the VA Loan Myth - Sellers Required to Pay VA Fees?

Debunking the VA Myth: Sellers Are NOT Required to Pay VA Fees

If you’re thinking about buying or selling a home, you might have heard this myth: sellers have to pay all the fees for VA loans. But guess what? That’s not true! Let’s talk about what VA loans really are and clear up this big misunderstanding.

What is a VA Loan?

A VA loan is a special kind of home loan for veterans, active-duty service members, and some military families. It’s backed by the U.S. Department of Veterans Affairs (VA), which means the VA guarantees part of the loan so lenders can offer better terms. VA loans often come with great benefits, like:

• No down payment.
• No private mortgage insurance (PMI).
• Competitive interest rates.

These benefits make it easier for people who served our country to afford a home.

The Myth: Sellers Must Pay VA Fees

Some people think sellers are required to pay extra fees for buyers using VA loans. This is a myth! The VA does have rules about what kinds of fees veterans can and can’t pay, but there’s no rule saying the seller has to cover those costs. In fact, who pays for what is usually decided during the negotiation process.

What Fees are Involved?

Here’s a quick breakdown of common fees and how they’re handled:

1. Loan Costs: The VA limits how much lenders can charge veterans for things like loan origination fees.
2. Closing Costs: These include things like appraisals, inspections, and title work. Some of these costs can be paid by the buyer, while others might be negotiated with the seller.
3. VA Funding Fee: This is a one-time fee veterans pay to help keep the VA loan program running. Buyers are responsible for this fee, though they can sometimes roll it into their loan amount.

Understanding the VA 1% Rule

The VA has a special rule called the 1% Rule to protect veterans from paying too much in fees. This rule limits the total amount of loan-related costs a veteran can pay to 1% of the loan amount.

Example:

Let’s say the loan amount is $400,000. Under the 1% Rule, the veteran’s loan-related fees can’t exceed $4,000. Lenders can use this amount to cover certain non-allowable fees, like underwriting or processing costs. However, discount points (fees paid to lower the interest rate) are NOT included in this 1% cap. This means veterans can still choose to buy discount points without affecting their 1% limit for other fees.

Lenders have some flexibility in how they use this 1% cap, making the process manageable for veterans while keeping costs fair.

What Sellers Need to Know

Sellers should know they are NOT required to pay for the buyer’s closing costs or other VA loan-related fees. However, buyers and sellers can negotiate who pays for certain costs as part of the deal. For example:

• A buyer might ask the seller to cover some costs in exchange for offering the full asking price.
• A seller might agree to pay some fees to make their home more appealing to VA loan buyers.

What Realtors Should Know

Realtors play an important role in helping veterans and sellers navigate the VA loan process. Here are some key points realtors should understand:

1. VA Loans Are Flexible: The VA loan program allows for negotiation between buyers and sellers. Sellers are not automatically responsible for covering VA fees.
2. Know the 1% Rule: Be familiar with how the VA’s 1% Rule protects veterans and limits their loan-related costs. This knowledge can help ease concerns for both buyers and sellers.
3. Educate Sellers: Help sellers understand that VA buyers are not more expensive to work with. Busting the myth about VA fees can open more opportunities for veterans to find homes.
4. Work with Experts: Partnering with lenders and mortgage advisors who specialize in VA loans can ensure the process goes smoothly for everyone involved.

What Buyers Need to Know

If you’re a buyer using a VA loan, don’t let this myth scare you! VA loans are designed to help you, and many sellers are happy to work with VA buyers. Just make sure to:

• Work with a knowledgeable real estate agent who understands VA loans.
• Be ready to negotiate on closing costs.
• Talk to your lender about any fees and what you might need to cover.

Why It’s Important to Bust This Myth

Believing in this myth can scare sellers away from accepting offers from VA buyers. That’s not fair to the veterans and service members who worked hard to earn this benefit. By understanding the truth, sellers can see that VA buyers are just like any other buyers — they simply have access to a great loan program.

Talk to an Expert

If you’re unsure about VA loans or what costs you might need to pay, talk to a trusted mortgage advisor or real estate agent. They can help you understand the process and make sure everything goes smoothly.

The Bottom Line

Sellers are NOT required to pay VA fees. This is just a myth! VA loans are a fantastic option for veterans and service members, and they don’t have to make the home-buying process harder for anyone. By understanding the truth, buyers and sellers can work together to make the dream of homeownership a reality for our nation’s heroes.