Most people know that when purchasing a home with the VA Loan, it is common practice to negotiate closing costs with sellers in order to not have to pay any money upfront at all. However, most people and definitely most agents, don’t know that when the credit from the seller is higher than the actual closing costs needed, the buyer now has a few different options for that extra money. This extra money is not money that a buyer can just take and walk away with, it must be used in the transaction or it will go back towards the seller’s final payment from the sale of the house. First, let’s start with an example from my most recent client that closed on their home with the VA Loan.
When we were in negotiations for the purchase of my client’s home, he made it clear that he wanted his closing costs to be completely covered so at closing he did not have to pay any money. After finding out a ball-park estimate for his closing costs of $6,500, I rounded up to be safe and I negotiated $7,000 in seller credits. What’s interesting is that the final closing costs actually came in around $6,000, so there was an additional $1,000 that my client could use for various things. In this situation, he decided to use that money for his credit card. However, there are a few more options that he had at his disposal and they are all listed below!
Interest Rate Reduction: Most people don’t understand that interest rates are actually determined by factors that real estate professionals don’t have control over. What you can do though is, no matter where interest rates are at for the moment, pay money to have the interest rate lowered. When you do this it lowers your monthly payment to make your home more affordable for you. In this situation, my client did not elect to do that since he was already happy with his payment, but this is just an option that you have when your agent is able to negotiate closing costs from the seller like I’m experienced in doing!
Debt Payoff: The VA Loan is unique in that it’s one of the only loan products that allows for seller credits to go towards debt payoff. So yes, it’s literally possible to purchase a home with your VA loan, $0 down (including closing costs) and come out in a better financial situation than you were in prior to your home purchase.
In situations like this, it may be a bit difficult to completely pay off a high-balance credit card or a loan, but you may be able to pay off at least some of your debt. There are a number of different ways that a Realtor that is informed and diligent will be able to help you navigate through a transaction while taking advantage of various loopholes and opportunities that others may not be aware of. If you learned something from this post, or if you’re interested in purchasing using your VA loan, then I’d be more than happy to answer any questions or comments that you might have!