Right about now, you’re probably getting tired of reading headlines about how bad the real estate market is and that the financial world is on its way to a meltdown.  Me too, but there’s another side to all of this, and one that you, on main street, can turn to your advantage.  Guess who else is aware of this phenomenon.  That’s right, every seller of a home currently listed for sale.  Credit is tightening for other loan programs and, in many pockets, prices are lower than they have been in years.

As a VA eligible homebuyer, you can purchase one of these homes at a value not seen in years…and with potentially very little out of pocket expense.  How so? Not only can you negotiate on price when buying a house, there’s another tool that can make getting into a home much easier, seller credit.  A seller credit is an additional sum of money paid by the seller for you to use to pay the closing costs on your loan.  Make sure to discuss this with your real estate agent.

The VA loan program allows sellers to provide buyers with a credit of up to 4% of the sales price of the house.  For example, when buying a $400,000 house, a seller can provide up to $16,000 in credit.  That’s a lot of money, and when combined with 100% VA financing, may completely cover closing costs (even if you only get a 1% seller credit).  This can allow you to obtain a home with next to nothing out of pocket at closing.  Those seller credits can be used in a number of ways, let’s take a look at a few:

  • Reduce Your Closing Costs: Depending on the size of your loan, the standard VA closing costs (without paying points) can range from about $2000 to $4000 .  If you are light on cash, you may want to use the seller credit to pay these costs for you.
  • Reduce Your Monthly Mortgage Payment: If you have cash available and ready to use to cover closing costs, you can use the seller credit to pay discount points which “buy down” your interest rate and lower your monthly payment.  For example, the monthly loan payment for a $400,000 loan at a 6% rate would be $2398/mo.  However, if you used a 2% seller credit, you could buy down the rate to 5.5% and reduce your payment to $2271.  That’s over $127 in savings every month for you to use however you please.
  • Afford a bigger, better house: What if you were comfortable with that $2398 payment?  You could still use the 2% credit to buy down your rate to 5.5%, but you could now bump up your loan amount from $400,000 to roughly $422,000 and still only pay $2398.  Use that extra purchasing power to obtain a home down the street with a better view, bigger living room, or an extra bedroom.  You have the power now, it’s up to you.
  • And in some cases, to help payoff debt – There a certain cases in which the seller credit may be used to pay off your existing debt.  If you can save a couple of hundred dollars each month by using the seller credit to pay off a credit card, that may be the wisest choice.  Inquire with your VA Loan Specialist about how to do so.

Of course, you can mix and match any of these options. What’s important is that you now know some additional ways to take advantage of a the benefits that the VA Loan program offers.