The Quick Read: It depends on what the seller is paying for. A seller can cover your allowable closing costs, and those don’t count toward VA’s limit. Other seller concessions are capped at 4% of the home’s appraised reasonable value. That 4% is a ceiling, not something a seller owes you, and a seller-paid funding fee counts toward it.
Most of the confusion comes from treating those two things as one pile. They are two buckets with different rules. Sort your costs into the right bucket and the rest of the math gets easy.
VA payment estimate
Starting assumptions reflect an example price with no down payment and a first-use funding fee. Replace them with your own figures.
Editable benchmark: 7.32% as of October 22, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a VA loan quote.
Illustrative starting assumptions: a $350,000 price, no down payment with full entitlement, a first-use funding fee financed into the loan, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a VA loan quote; your rate is set by the lender at lock. The funding fee follows VA’s published table for the use and down payment entered; the residual-income figure is VA’s guideline for the region and family size, and the rough residual shown subtracts only the housing payment and the debts entered, while VA also deducts taxes, maintenance and utilities. Taxes, insurance and dues are editable estimates; closing costs are not included. Licensed in sixteen states for consumer mortgages. Lendmire is not affiliated with or acting on behalf of the Department of Veterans Affairs.
The Two Buckets: What Counts and What Doesn’t
The seller can pay your allowable closing costs without using up the 4%. Closing costs are the fees to complete the purchase: appraisal, credit report, title work, recording, survey, flood determination, and similar items. Everything else a seller adds for your benefit goes in the second bucket.
| Bucket | What goes in it | Limit |
|---|---|---|
| Allowable closing costs | Appraisal, title, recording, credit report, survey | Not part of the 4% |
| Seller concessions | Funding fee, debt payoffs, gifts | 4% of reasonable value |
| Seller concessions | Temporary buydown funds, prepaids beyond customary | 4% of reasonable value |
A seller concession is anything of value the seller adds that you don’t pay extra for and that the seller isn’t customarily expected to provide. Those are the items that eat the 4%.
Here is the plain version. The seller pays your closing costs: not capped by VA’s concession rule. The seller pays your funding fee or pays off your car loan: that’s a concession, and it uses cap room.
People hear “the seller can pay 4%” and assume that is the total. It isn’t. The total can be higher, because the first bucket sits outside the cap.
VA also limits what you can be charged, and that is a separate set of rules from what the seller can pay. If you want the full picture of what a VA loan program offers a buyer, including 100% financing and no mortgage insurance, the hub page covers it. This article stays focused on the seller’s side of the table.
What Is the 4% Measured Against?
The 4% applies to VA’s established reasonable value, not the contract price and not the loan amount. Reasonable value is the figure on the Notice of Value, the document VA’s appraiser produces. It is the appraised value VA will stand behind.
That detail matters when the appraisal doesn’t match the contract. Here is how it plays out.
| Appraisal result | What happens to the 4% | Your move |
|---|---|---|
| Value equals price | 4% of the price | Proceed as written |
| Value below price | 4% of the lower value | Reconsider value, renegotiate, or bring cash |
| Value above price | 4% of the higher value | More room, if the seller agrees |
When the value comes in short, you have three options. You can ask for a reconsideration of value, renegotiate the price, or cover the gap with your own cash. VA’s Home Loan Guaranty Buyer’s Guide lays out those same choices. A low appraisal does two things at once: it can leave you owing cash, and it shrinks the base for the 4%.
A higher appraisal is the rare good news. The ceiling is tied to value, so it can rise with it. But the seller still has to agree to pay anything.
It’s a Ceiling, Not an Entitlement
Nothing in VA’s rules makes a seller pay 4%. Nothing makes a seller pay 1%. The cap only says what is too much.
So the real number is whatever you negotiate, up to that ceiling. In a market where homes sit, sellers often say yes to a credit. In a market where homes draw several offers, the same ask can sink your offer. Your agent’s read on local conditions matters more than the rule does.
Think of it as a negotiating budget. It tells you how much room exists. It doesn’t tell you how much room you will get.
What Counts Toward the 4%, Item by Item
Funding fee paid by the seller: counts. Any party can pay the VA funding fee, and when the seller does, it is a concession.
Debt payoffs: count. A seller who pays off your car loan so you qualify is giving you something of value, and VA treats it that way.
Gifts: count. A seller who adds a gift to the deal puts it against the cap.
Prepaids beyond what’s customary: count. Prepaids are the up-front tax and insurance deposits at closing. Customary amounts are part of closing costs; extra amounts are not.
Temporary buydown funds: count in the usual treatment. A temporary buydown is money set aside to lower your payment for the first stretch of the loan. Underwriters generally qualify you at the full payment, not the reduced one.
Buyer-broker compensation: doesn’t count. VA’s Circular 26-24-14 addresses this directly. It says VA doesn’t treat a seller’s payment of buyer-broker charges as a seller concession. The same circular created a temporary variance that lets a veteran pay those charges, and a buyer-paid version counts in the liquid-assets review. Details of that guidance can change, so confirm the current treatment with your loan officer before you write an offer around it.
Lenders can also set tighter contribution limits than VA does. That would be a lender policy, not a VA rule. If a lender says 3%, ask whether that is VA’s number or the lender’s.
What “First-Time” Changes
“First-time” means two different things, and only one of them changes your funding fee. A first-time homebuyer has never owned a home. A first-time VA user has never used the VA loan benefit. You can be one without the other.
The funding fee depends on VA use, not homeownership. On a first-use purchase, it runs 2.15% with less than 5% down, 1.5% with 5% to under 10% down, and 1.25% with 10% or more down. After first use with less than 5% down, the fee is 3.3%. VA’s funding fee table covers veterans, active-duty service members, and Guard and Reserve members alike. Being on active duty doesn’t change the table. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
So a service member who bought a home using VA years ago and is buying again pays the higher subsequent-use fee. Someone who has owned a home with a conventional loan but never touched VA is still a first-time user.
Why does this belong in an article about seller payments? Because the fee is a large piece of the 4%. If the seller pays it, the fee uses cap room. If you are exempt, it uses none.
Veterans who receive compensation for a service-connected disability are exempt from the fee, along with certain other groups. A fee of zero leaves the full 4% for other items. Your Certificate of Eligibility (COE) shows whether you are exempt. The COE is the VA document that confirms you are eligible for the benefit, and VA’s rules, not the lender’s, decide that.
One more first-use point: the funding fee is the one closing item that can be rolled into the loan on a purchase. Other closing costs need cash, a seller credit, or a lender credit.
Active-Duty Buyers: Where the Timing Gets Tight
Active-duty buyers face constraints a civilian buyer doesn’t, and the concession strategy has to fit them. Orders set the calendar. A report date doesn’t move because an appraisal came in low.
Three practical points follow from that.
First, line up your COE early. Eligibility is VA’s call, and a missing document can stall a file at the worst moment.
Second, if you are buying from a distance, you may not be in the room when the offer is negotiated. Write the seller’s credits into the contract clearly, so nothing depends on a phone call. Spell out which dollars are closing costs and which are concessions.
Third, build in a fallback. If the appraisal comes back lower than the price, what happens to the credit? A contract that says “the seller pays the lesser of a stated percentage or the VA maximum” holds up better than a fixed amount that could break the cap.
Occupancy matters too. VA loans are for a home you will live in as your primary residence, so the concession plan should match a home you will occupy.
Worked Examples (Percentages, Not Dollars)
Run the numbers on a few shapes of deal. In each, assume a first-use purchase.
Example 1: Appraisal equals the contract price, zero down. The cap is 4% of the price. The first-use fee with less than 5% down is 2.15% of the loan amount. If the seller pays that fee, it uses roughly 2.15 points of the 4%, leaving about 1.85% of the price for other concessions. The seller can still pay allowable closing costs on top, outside the cap. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Example 2: Same deal, but you are fee-exempt. The fee is zero, so the full 4% stays open. You might use that room for a debt payoff or prepaids.
Example 3: Appraisal comes in below the price. The cap is now 4% of the lower value, so room shrinks. You also face a gap between price and value, which you must fix through a reconsideration of value, a lower price, or cash. Fix the gap first. Then recalculate what concessions still fit.
Example 4: Seller offers concessions above the ceiling. Say the seller agrees to more than 4% of value in concessions. Excessive concessions are prohibited on VA-guaranteed loans, so the file has to be reworked. The contract gets trimmed, the extra cost moves to you, or you renegotiate. Sort this out before closing, not at the table.
Notice what these examples have in common. In each one, the buyer sorted the seller’s dollars into buckets before doing anything else.
Stacking the Pieces
You can combine tools to reduce cash to close, but the seller must agree to the seller’s share. A typical stack on a VA purchase looks like this:
1. Finance the funding fee into the loan, if you aren’t exempt and don’t want to pay it in cash.
2. Ask the seller to pay allowable closing costs. This sits outside the 4%.
3. Use any remaining concession room, up to 4% of reasonable value, for items that help you most.
4. Ask the lender about lender credits, which are a separate tool from seller money.
Financing the fee raises your loan balance, which raises your payment. A seller-paid fee avoids that. That is the tradeoff to weigh, and it is why a seller-paid fee can be worth more to you than its size suggests.
Residual income, the money left each month after your obligations, is the controlling test on VA loans. The 41% debt-to-income figure is a guideline, not a cap, but a ratio above it needs residual income well above the table. A concession can’t be used to hide an inability to qualify. That is exactly what the rule exists to stop.
Where the Rule Comes From
VA explains its reasoning in the Lenders Handbook (VA Pamphlet 26-7), Chapter 8. The handbook sets the 4% limit and measures it against established reasonable value. It also says concessions can entice unqualified veterans into loans they can’t afford and can disguise an inability to qualify. That is the whole logic of the cap.
The handbook also separates concessions from closing costs and market-appropriate points, which is why those two sit outside the 4%.
On paperwork, VA’s Circular 26-17-11 says lenders document allowable fees and any lender and seller credits on the Closing Disclosure. That form is the final statement of the loan’s costs. Review it carefully. A lump-sum credit shows up as a “Seller Credit,” while a credit tied to a specific cost appears on that line.
What the Seller Gets Out of It
Sellers usually think in terms of net proceeds. A credit toward your costs reduces what they walk away with, much like a price cut does.
Some sellers prefer a credit to a lower price. A credit can keep the headline sale price intact, which can matter for the next buyer’s comparison. That is a seller’s judgment call, and your agent can frame it.
Many sellers also don’t know the VA rules. A VA-savvy agent who can explain the two buckets often helps more than a firmer ask.
How This Compares to Other Loan Types
Other programs set their own seller-contribution limits, measured their own way, and they don’t match VA’s. Don’t carry the 4% figure into a conventional or FHA purchase.
Key Terms Defined
Seller concession: Something of value a seller adds for the buyer’s benefit that the seller isn’t customarily expected to provide, and for which the buyer pays nothing extra.
Reasonable value: The value VA establishes through its appraisal, shown on the Notice of Value. It is the base for the 4% limit.
Funding fee: A one-time VA fee on most purchases, set by use and down payment, which can be financed. Veterans receiving service-connected disability compensation and other exempt groups don’t pay it.
Certificate of Eligibility (COE): The VA document confirming you qualify for the home loan benefit.
Residual income: The money left each month after major obligations and living costs. It is the controlling test on a VA loan.
Closing Disclosure: The final form listing the loan’s costs and credits, including anything the seller pays.
Mistakes That Waste Cap Room
- Treating 4% as the total the seller can pay, when closing costs sit outside it.
- Measuring 4% against the price instead of reasonable value.
- Asking the seller to pay a funding fee you are exempt from.
- Leaving a credit as a flat number with no fallback if the appraisal falls short.
- Assuming a lender’s limit is VA’s limit.
Skip those five and you are ahead of most first-time buyers.
Frequently Asked Questions
Does a seller have to pay anything on a VA loan?
No. The 4% is a ceiling on what the seller can add as concessions, not a requirement. Whether you get a credit at all depends on your contract negotiation and the local market.
Does the seller-paid funding fee count toward the 4%?
Yes. Any party can pay the funding fee, and when the seller does, it counts as a concession. If you are exempt from the fee, there is nothing to count, and the whole 4% stays available for other items.
Is the 4% based on the price I’m paying?
No. It is based on VA’s established reasonable value from the appraisal. When value and price match, the two numbers are the same. When the appraisal comes in lower, the cap shrinks with it.
Does a seller paying my agent’s commission use up the cap?
Not under VA’s guidance. Circular 26-24-14 says a seller’s payment of buyer-broker charges isn’t treated as a seller concession. Confirm the current treatment with your loan officer, since this area has seen recent changes.
Does being a first-time homebuyer change how much the seller can pay?
Not directly. The cap is the same. What changes is the funding fee, which depends on whether it’s your first use of the VA benefit. A lower fee leaves more cap room if the seller is paying it.
Next Step
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. Reach the team at 828-256-2183. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. VA Home Loan Guaranty Buyer’s Guide
2. VA News: Funding fee, who pays and who is exempt
3. VA Pamphlet 26-7, Chapter 8, via KnowVA
This article is part of Lendmire’s VA loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can an Active-Duty First-Time VA Loan User Buy in an Unapproved Condo? · VA Loan vs Conventional Loan for a First-Time VA User on Active Duty · Does a VA Loan Fall Through More for a First-Time Active-Duty Buyer?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.