Debts can be paid off at closing!
Debts can cause closing issues but there are solutions with VA loans!
Have you ever had a VA purchase closing where there are remaining funds leftover from the seller paid costs but there are no other costs to pay? Do you have a situation where current debts are creating a high debt ratio problem? Check out some solutions we have to make that next VA purchase close!
What to do with extra seller contributions on a VA purchase
Often on a VA purchase, the buyer and seller agree to a certain amount of seller paid closing costs for the buyer based on an estimation of the expected costs. But then as the process moves along and the estimates become actual invoices that start rolling in, the costs could go down. So what if there are funds left over from the seller paid costs and there are no other costs the seller could pay? There is a solution we allow on VA loans. In these cases, the borrower could provide a statement for a bill such as a credit card or loan so we could apply the extra funds to the balance. How about that? That is a sweet deal! Buy a house, have all of the costs included in the loan, and then pay down a bill!
VA Funding Fee: Additionally, the seller paid costs may pay towards the Veteran’s funding fee as well. So if the funding fee is $4000, the seller could pay $1000 of it at closing so that only $3000 is financed.
How to help a Veteran qualify with seller concessions
What if you are running into a situation where the Veteran’s debt ratio and/or residual income is not within guidelines? The Veteran really wants to purchase this home and is confident in making the payment, yet there is this debt to income issue. On a VA loan, we allow for the seller to pay off a Veteran’s debt within the seller paid concessions of the contract. So let’s say that a borrower has debts that would need to be paid off in order to qualify and the Veteran does not have the funds to do so. In this case the seller could be allowed to not only pay closing costs but also pay off debts for the Veteran including loans, credit cards, or even the remaining term of their current lease. How about that? Another cool way that can help a Veteran buy a home and lower their bills at the same time!
Language required on the purchase contract for debts to be paid off
If a seller agrees to pay for the Veteran’s debts in a purchase, then there needs to be very specific language on the purchase contract. The wording needs to state specifically that the seller contributions are to be used for “debt payoff” or it can have a general line like “seller contribution to be used for closing costs, prepaids, and other items at borrower’s discretion”.
There are a lot of ways in which a VA Guaranteed Home Loan can help Veterans, active service members, and qualifying surviving spouses. Trust our team of VA home loan experts and our understanding of VA guidelines to help your VA purchase close.
- Maximum seller paid concessions on a VA home loan
- Check out this success story where a Veteran gets a 2nd VA loan and gets debts paid off
Author: Russell Smith
Team Move OVM Financial loan officer success is Russell’s primary focus. He provides the tools and techniques he used as a top producing loan officer. Additionally he offers the Team Move OVM Financial Agent Training Program. Sharing is so important to Russell so he works diligently to be a resource to loan originators and Realtors.