Homeowners

VA Seller Concession Rule: The 4% You Need to Understand

November 03, 2025
VA Seller Concession Rule: The 4% You Need to Understand

Short answer: On VA loans, a seller (or builder) may pay all allowable closing costs and also provide additional “seller concessions” up to 4% of the home’s reasonable value (the VA appraisal/Notice of Value). Closing-cost credits don’t count toward the 4% cap; “concessions” do.

Jump to: What counts as a seller concession • How the 4% limit works • Why VA caps concessions • Practical scenarios • “Reasonable value” vs. price • Quick math example • Tips for buyers & sellers • Common misconceptions • FAQs • Official sources • PCS & VA resources

What counts as a “seller concession”?

VA definition (plain-English): A seller concession is anything of value that the buyer wouldn’t normally pay for and receives for free from the seller. These do count toward the 4% cap:

  • Paying the buyer’s VA funding fee
  • Prepaying property taxes and homeowners insurance (escrows)
  • Temporary or permanent interest-rate buydowns funded by the seller beyond what’s customary for the market
  • Gifts or inducements (e.g., “free” appliances)
  • Paying off the buyer’s consumer debts or judgments

By contrast, seller-paid closing costs (title, appraisal, recording, lender fees) and market-normal discount points are not counted in the 4% concession total.

The 4% limit—what it actually caps

The total of all seller concessions cannot exceed 4% of the VA reasonable value (the Notice of Value issued from the VA appraisal). Do not include allowable closing-cost credits or customary points in this 4% total.

Key distinction:
Closing-cost credits (title, origination, appraisal, recording, etc.) → No VA cap (still must be allowable/reasonable).
Seller concessions (funding fee, prepaids/escrows, debt payoffs, extra points for buydowns, gifts) → Capped at 4%.

Why the cap exists

VA limits concessions to prevent excessive inducements that can mask an unaffordable loan by artificially reducing cash to close. The cap helps protect servicemembers and Veterans.

Practical scenarios (what’s capped vs. not capped)

Scenario 1: Seller pays all standard closing costs

Title, lender fees, appraisal, recording, etc. Not counted toward the 4% concession cap. Still must be allowable and customary.

Scenario 2: Seller funds a 2–1 temporary buydown and pays the VA funding fee

Both items are concessions and must fit inside the 4% of reasonable value.

Scenario 3: Seller pays discount points

If the market dictates 2 points today, those are customary and do not count toward the 4%. If the seller pays 5 points when the market norm is 2, the extra 3 points are a concession and do count.

Scenario 4: Builder incentives

“Free” appliances, paying off a credit card, or prepaying taxes/insurance are concessions and count toward the 4% cap.

“Reasonable value” vs. price—what number is used?

The 4% cap is based on the home’s VA reasonable value (from the Notice of Value), not necessarily the contract price. If the appraisal comes in lower than the price, the 4% is calculated from the lower appraised value.

Quick math example

  • Notice of Value (reasonable value): $400,000
  • Max concessions = 4% × $400,000 = $16,000
  • Seller can also pay all allowable closing costs on top of that, subject to program rules.

Tips for Military Buyers & Sellers

For Buyers (Veterans/Spouses)

  • Prioritize the 4% bucket: funding fee, buydown, prepaids (taxes/insurance), or a targeted debt payoff to help DTI.
  • Separate the buckets: Ask your lender for a fee sheet that clearly splits closing costs vs. concessions.
  • Remember VA rules: VA loans are for a primary residence and must meet Minimum Property Requirements (MPRs) and appraisal standards.

For Sellers (and Listing Agents)

  • Use credits strategically: You can fully cover closing costs and still have up to 4% for concessions.
  • Watch the appraisal: If you’re near the cap, even small add-ons (temporary buydown funds, prepaid escrows) can push you over. Consider tying credits to the Notice of Value.
  • Avoid non-customary inducements if they bust the 4% cap (e.g., gifts, extra points).

For Buyer’s Agents

Sample offer structure:

  • Line 1: “Seller to pay buyer’s allowable closing costs up to $X.” (Separate bucket.)
  • Line 2: “Seller to provide concessions up to $Y (≤4% of NOV) for [funding fee / buydown / prepaids / debt payoff].”

Common misconceptions—cleared up

  • “VA only allows 4% toward buyer costs.” Incorrect. VA doesn’t cap closing-cost credits; the 4% cap applies only to concessions.
  • “Any discount points are concessions.” Not necessarily. Market-appropriate points aren’t concessions; excess points are.
  • “Gifts and appliances don’t matter.” They do—these are concessions and count toward the 4% cap.

FAQs

Can the seller cover all my closing costs and also give me 4% in concessions?

Yes. Closing-cost credits are not capped by VA. Concessions (funding fee, buydown funds, prepaids, debt payoff) are capped at 4% of reasonable value. Lenders still review all credits for allowability and program compliance.

Is a temporary 2–1 buydown considered a concession?

Yes, if seller-funded. It counts toward the 4% cap.

Who decides “reasonable value”?

The VA appraiser establishes reasonable value, and VA issues a Notice of Value (NOV). The 4% cap is based on that number.

Can the seller pay my VA funding fee?

Yes. But it’s a concession and counts toward the 4% limit.

Bottom line

For VA buyers, structure matters. Keep closing costs and concessions in separate lanes. Sellers can help reduce cash to close and smooth payments—as long as concessions stay ≤4% of reasonable value and everything else is allowable. Team up with a VA-savvy lender and a Compass Military agent to design compliant offers that align with your PCS timeline.

Educational content only—this is not legal, tax, medical, or financial advice. VA program details can change; verify with your lender and VA.

Official sources

Helpful resources for your move

PCS / Entitlements / Regulations

BAH & Pay

VA Home Loans

Health Coverage (Orientation)

Next steps

Planning a PCS and considering seller credits near your next installation? Connect with a Compass Military agent to map your timing, structure compliant offers, and coordinate with a VA-experienced lender.