Can a Seller Pay the Funding Fee on a VA Loan?

The Quick Read: Yes. A seller can pay the buyer’s VA funding fee, but VA treats that payment as a seller concession, not an ordinary closing cost. That means it counts toward VA’s 4% limit on concessions, which is measured against the property’s reasonable value on the appraisal. The seller is never required to agree, and a veteran who is exempt from the fee has nothing for the seller to pay.

That’s the short version. The rest of this piece covers how the cap works, what counts against it, how to ask, and when it makes more sense to finance the fee instead.

What Does VA Count as a Seller Concession?

A seller concession is anything of value the seller or builder adds to the deal that the buyer doesn’t pay extra for and that the seller isn’t customarily expected to provide. VA Pamphlet 26-7, Chapter 8 lists payment of the buyer’s VA funding fee as the first example.

Other items on the same list:

• Prepaying the buyer’s property taxes and insurance
• Gifts such as a TV or microwave
• Extra points for a permanent rate buydown
• Escrowed funds for a temporary buydown
• Paying off the buyer’s credit balances or judgments

Across the VA files that go through wholesale lenders, the funding fee is the item people forget to count. A contract says “seller pays closing costs” and everyone assumes the fee is inside that phrase. It isn’t. Under VA’s rules it sits in the concession bucket, and the lender will total it with everything else on that list.

What Is the 4% Limit and What Is It Based On?

VA caps total seller concessions at 4% of the property’s established reasonable value. Anything above that is treated as excessive and not acceptable on a VA-guaranteed loan. The VA’s own Home Loan Guaranty Buyer’s Guide describes the same concept: sellers may pay closing costs and other concessions, with concessions up to 4%.

Two details matter here.

The base is reasonable value, not price. Reasonable value comes from the VA appraisal and shows on the Notice of Value. Plenty of consumer articles say “4% of the loan” or “4% of the price.” The handbook language points to reasonable value. On most files the two numbers are close. They split when an appraisal lands under the contract price, and then the room under the cap shrinks with it.

The cap is on concessions, not everything the seller pays. The handbook says concessions don’t include the buyer’s normal closing costs, or points that are appropriate to the market. So a seller can cover ordinary closing costs without touching the 4%. The funding fee is different. It lands inside the cap.

What Falls Outside the Cap?

Ordinary closing costs and customary, market-appropriate loan pricing items sit outside the concession limit. The handbook gives an example: if the market calls for a certain level of loan pricing items and the seller pays more than that, the excess counts as a concession.

Here is how the buckets sort out:

That last row comes from VA Circular 26-24-14, which says a seller paying the veteran’s buyer-broker charges is not treated as a seller concession. The circular also announces a temporary variance on those charges, so check its date and current status before relying on it.

Some lenders apply one blanket cap on all seller contributions. That is lender policy, not a VA rule. VA’s only stated limit on concessions is the 4%. If a lender sets something tighter, it’s an overlay, and it varies by wholesale program.

How Do You Ask the Seller to Pay It?

The ask happens in the purchase contract. The seller can say no, and the fee can’t be waived by the seller, only covered. Here is the sequence that keeps the file clean.

1. Write it in the offer. The buyer asks for a stated credit toward the funding fee, or a larger concession package that includes it. Your agent drafts the language.

2. Separate the categories on paper. The contract should show seller-paid closing costs apart from concessions. When one line says “closing costs and funding fee,” the lender has to untangle it, and misclassification is a common reason a file gets sent back for a contract amendment.

3. Let the appraisal set the base. The VA appraisal produces the reasonable value. The 4% is measured against it.

4. Lender totals every concession. Underwriting adds up everything that counts: the fee, prepaids, extra points, buydown escrow, debt payoffs and gifts. The total has to stay at or under the cap.

5. The lender remits the fee. After closing, the lender sends the funding fee to VA through its payment system within 15 calendar days of closing, per the handbook.

6. Check the Closing Disclosure. Concessions and seller-paid closing costs should show in their proper places. Compare it to the Loan Estimate and ask questions before closing, not at the table.

What Does the Funding Fee Cost?

The fee is a one-time charge, and it depends on how you use the benefit and how much you put down. Across the wholesale programs Lendmire places VA loans with, the figures run like this on a purchase:

On a no-down-payment purchase, that is the 2.15% or 3.3% tier. A fee in that range is a meaningful chunk of room under the 4% cap, which is why it matters whether the fee competes with other asks. Exact figures are subject to lender guidelines and full file review, and VA publishes its own table on its funding fee and closing costs page.

The fee also sits inside the cap in a way that surprises people. A repeat-use buyer with nothing down carries the highest tier. If that buyer also wants a temporary buydown and prepaid escrow from the seller, the stack can exceed 4% faster than expected.

Who Doesn’t Owe the Fee at All?

Veterans who receive compensation for a service-connected disability are exempt, along with certain other groups such as some surviving spouses. The certificate of eligibility (COE) from VA shows the exemption.

Two timing wrinkles come up. If a disability rating is pending, the exemption may not show on the COE yet. Check the status with VA before writing a seller credit for a fee that may disappear. And if a seller already agreed to cover a fee the borrower turns out to be exempt from, the credit may need to be restructured, since a concession has to attach to a real cost. Talk to the loan officer before the contract is signed, not after.

An exempt buyer who wants help from the seller has other places to put it. Ordinary closing costs sit outside the cap, and a price reduction is always an option.

Seller-Paid, Financed, or Cash: How Do You Choose?

The funding fee is the one closing cost a borrower can finance into a purchase loan. That gives a buyer three paths.

Financing the fee raises the loan balance, which raises the monthly payment. A seller-paid fee avoids that. Paying cash does too, but it takes money you may need for reserves or moving.

Here is a rule of thumb from the file side. If the seller is already covering other concessions that crowd the cap, finance the fee. It is the usual fallback when other asks have used up the room. If the cap has space and the seller is motivated, asking costs little.

One more option: ask for a lower price instead. A price cut reduces the loan amount and doesn’t count as a concession at all. In a market where sellers push back on credits, it can be the cleaner request.

Does Asking Weaken Your Offer?

It can. In a market where sellers get several offers, a request for concessions may lose to a cleaner bid, and some sellers pass on offers that ask for too much. In a slower market, a credit is easier to win. A buyer’s agent can read which one you’re in.

The seller’s side matters too. A credit comes off the seller’s net proceeds, much like a price cut. Some sellers prefer a stated credit to a lower price because the sale price on record stays higher. That is a negotiation point, not a VA rule.

VA’s reason for the cap is worth knowing. The handbook says concessions can entice unqualified veterans into loans they can’t afford, or hide an inability to qualify. Residual income is the controlling test on a VA loan, and a concession doesn’t change it. A credit lowers cash to close. It doesn’t fix a file that fails the income test.

What Happens If the Package Goes Over?

If total concessions pass 4% of reasonable value, the lender can’t close the file as written. The contract has to be restructured. Common fixes:

• Move ordinary costs into the seller-paid closing costs bucket, which sits outside the cap
• Drop a gift or a buydown from the package
• Finance the funding fee
• Ask for a price reduction in place of some credits

A low appraisal makes this worse. When reasonable value comes in under the contract price, the cap shrinks. A package that fit on the original number may no longer fit. That is one reason to watch the appraisal and stay flexible on the fix. A VA loan doesn’t allow a price above appraised value to be financed with no down payment, so a low value forces a renegotiation anyway.

What About Refinances?

The seller concession framework is built around a seller or a builder. A refinance has no seller. On an IRRRL or a cash-out refinance, the funding fee is typically financed or paid by the borrower. Across the wholesale programs the IRRRL carries a 0.5% fee unless the veteran is exempt, and the VA cash-out carries 2.15% on first use and 3.3% after. Those are program figures subject to lender guidelines and file review. If you’re weighing a refinance for an existing VA loan, Lendmire’s piece VA Cash-Out Funding Fee Rules for a Veteran With an Existing VA Loan covers the cash-out side.

Key Terms Defined

Seller concession: Something of value the seller adds to the deal that the buyer doesn’t pay extra for and that isn’t customary.

Reasonable value: The value VA’s appraisal sets, shown on the Notice of Value, which is the base for the 4% limit.

Funding fee: A one-time VA charge on the loan that can be financed and is waived for exempt veterans.

Certificate of eligibility (COE): The VA document that confirms eligibility and shows any funding fee exemption.

Residual income: The money left after major monthly obligations, which is the controlling test on a VA loan.

Mistakes That Stall Files

• Treating the funding fee as an uncapped closing cost
• Writing one contract line that blends closing costs and concessions
• Measuring the 4% against price instead of reasonable value
• Asking a seller to pay a fee the buyer is exempt from
• Forgetting a lender may set a tighter cap than VA
• Stacking a temporary buydown on top of the fee without totaling the cap

If you are buying a home and want to see whether a VA loan fits your file, Lendmire can help you compare the options and what each one asks of the file. Lendmire’s VA loan programs cover 100% financing, no mortgage insurance and the funding fee tiers above, all subject to lender guidelines and full file review. Nothing here is a commitment to lend.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. VA Pamphlet 26-7, Chapter 8, Borrower Fees and Charges and the VA Funding Fee

2. VA Home Loan Guaranty Buyer’s Guide

3. VA Circular 26-24-14

4. VA.gov Funding Fee and Closing Costs