VA Loan Seller Concessions: Debt Payoff, Discount Points, and the 4% Rule

When you use a VA loan to buy a home, you get some powerful benefits: no down payment, no mortgage insurance, and flexible approval standards. But there’s one part that often gets overlooked—VA loan seller concessions. These allow the seller to cover some of your costs, and even pay off debts to help you qualify. The key is knowing how the VA’s 4% rule works, what’s inside the cap, and what’s outside it. Understanding these rules can save you thousands and make the difference between getting approved or denied. If you want help structuring your VA offer, connect with the JD.Mortgage team at PRMG.

What Are VA Seller Concessions?

Seller concessions are extra help a seller gives a buyer in a real estate transaction. These go beyond normal closing costs and can include things like paying off debts, covering the VA funding fee, or buying down the interest rate. The VA limits these concessions to 4% of the home’s purchase price. Anything above that is not allowed.

It’s important to note that normal closing costs are not part of this cap. That means the seller could pay your title fees, appraisal, and recording charges without them counting toward the 4% limit. The 4% only applies to concessions—those “extra” items that make the deal easier for the veteran.

Debt Payoff: The Overlooked Benefit

One of the most powerful ways seller concessions can help a VA buyer is by paying off debts. This isn’t just about saving money—it can improve your debt-to-income ratio (DTI) and make you eligible for approval when you otherwise might not qualify. For example:

• Paying off a $5,000 credit card could drop your monthly payment by $150.
• Wiping out a personal loan with only a few months left could free up another $200 a month.
• Clearing out a small auto loan could reduce your obligations enough to meet the VA’s residual income guidelines.

These payoffs count as part of the 4% concession cap, but they can make the difference between approval and denial. The JD.Mortgage team works with veterans and agents to plan out which debts to target so the deal stays within VA rules.

How the VA’s 4% Rule Works

The VA limits seller concessions to 4% of the purchase price. Here’s what that means in practice:

• If the home price is $350,000, the 4% concession limit is $14,000.
• That $14,000 could be used for debt payoff, prepaid items like taxes and insurance, funding fee coverage, or temporary rate buydowns.
• On top of that $14,000, the seller can still pay your normal closing costs—because those are separate from concessions.

This is where many people get confused. They assume the seller can only pay 4% total, but the VA makes a clear distinction between concessions and closing costs. See VA.gov for the official explanation.

Discount Points vs Temporary Buydowns

Many buyers use seller help to lower their interest rate. But here’s the important distinction under VA rules:

• Discount points are prepaid interest you pay up front to lower your rate. If the points are customary for your market and used to secure the day’s market rate, they are not counted toward the 4% cap.
• Temporary buydowns (like 2-1 or 1-0 buydowns that lower the payment for the first year or two) are treated as concessions and do count against the 4% limit.

That means a seller could pay several thousand dollars in discount points in addition to concessions, but a temporary buydown would be limited by the 4% cap. Knowing this difference is crucial when structuring your deal.

Items That Count as Concessions

• Paying off buyer debts
• Prepaid expenses like taxes and insurance
• VA funding fee paid by the seller
• Temporary rate buydowns
• Extra gifts or “incentives” offered by the seller or builder

Items Outside the Concession Cap

• Customary closing costs (appraisal, title, recording, etc.)
• Discount points needed to secure the market rate
• Repairs required by the VA appraisal

Case Study: Using Concessions to Pay Off Debt

Let’s say a veteran is buying a $300,000 home. Their DTI is too high because of a $6,000 credit card balance and a $4,000 personal loan. That’s $10,000 in debt. The seller agrees to pay off both debts as part of concessions. Because the concession cap is $12,000, this fits VA rules. The veteran’s monthly obligations drop by $350, their DTI improves, and the loan is approved.

Case Study: Restructuring a Builder Incentive

A builder offers a $20,000 incentive on a $400,000 home. The 4% concession cap is $16,000. To make this compliant, the lender restructures the incentive as follows:

• $10,000 applied as debt reduction, paying off credit cards and small loans
• $2,000 applied to prepaid taxes and insurance
• $8,000 applied to normal closing costs and discount points customary to the market (not part of the 4% concession cap)

This way, the veteran gets the full $20,000 benefit without breaking VA rules, and the contract is structured to satisfy both VA guidelines and underwriting requirements.

Tips for Real Estate Agents

• Work with a lender who knows VA rules—especially on concessions.
• Split closing costs and concessions into separate line items in the contract.
• Ask the lender to provide sample wording so the offer is written correctly.
• Use concessions strategically to reduce debts or buy down the rate, not just to throw money at fees.

Common Mistakes to Avoid

• Assuming all seller help is capped at 4%. It’s not. Allowed closing costs are separate.
• Failing to plan debt payoff. Targeting the right debts can make or break an approval.
• Using all concessions on temporary buydowns. This can limit flexibility. Discount points may go further.
• Not looping in the lender early. VA rules require the contract to match the structure. Get guidance before the offer is written.

FAQs About VA Seller Concessions

1) Can the seller pay off my debts so I qualify?

Yes. Debt payoff is one of the biggest benefits of VA seller concessions. It counts toward the 4% cap.

2) Are discount points part of the 4% limit?

No. Customary discount points used to secure the market rate are outside the cap and can be paid by the seller.

3) Are temporary buydowns part of the 4% limit?

Yes. Programs like 2-1 or 1-0 buydowns are treated as concessions and count toward the 4% limit.

4) Can the seller cover my VA funding fee?

Yes, the funding fee can be paid by the seller, but it counts toward the 4% cap.

5) Can the seller cover both concessions and my closing costs?

Yes. Closing costs and concessions are separate. A seller can cover both if agreed in the contract.

6) How do I know how much to ask for?

Work with your lender to review a fee estimate and your debts. We’ll structure the numbers so you know exactly what to request without going over the VA’s limits.

Work With Experts Who Know VA Rules

The VA program is one of the most flexible paths to homeownership, but details like the 4% concession cap can be tricky. Misunderstandings about debt payoff, discount points, and buydowns cause deals to fall apart every day. The JD.Mortgage team at PRMG helps veterans and their agents nationwide (excluding NY) close loans others can’t. Want help structuring your concessions the right way?