If you want to use a VA loan to get a home, you’re getting a lifeline from the VA. It announced it’s lifting its long-standing ban on homebuyers paying their agent’s commission fees.
This change comes at a time when you and other veterans or servicemembers may feel like getting home may be impossible. You’re facing mortgage rates at a 20-year high and record-high home prices. To make matters worse, a recent lawsuit against the National Association of Realtors (NAR) ended in a proposed settlement that was poised to hurt those using VA loans.
The proposed settlement came in March and signaled an end to the traditional practice of home sellers paying the agent commissions for both the buyer and seller. Previously, the VA wouldn’t allow a home buyer to pay their agent’s fee, meaning this settlement could make an offer with a VA loan less attractive to a seller. But today’s change helps prevent that.
“Veterans can now pay reasonable and customary amounts for certain charges, including commissions and other agent-related fees, to stay competitive in the rapidly changing housing market,” said Under Secretary for Benefits Joshua Jacobs. “We always want to put Veterans and their families in the best possible position to buy the homes they want. That’s what this update is all about,” Jacobs added.
The temporary fix goes into effect on August 10, 2024.
Rules for Paying Agent Commissions
The temporary rule makes VA loans more competitive, but there are still conditions:
- The home must be in an area where:
- Listing brokers (the seller’s real estate agent) can’t set or advertise buyer-agent commissions through platforms like the Multiple Listing Service (MLS); or
- The buyer agent’s compensation can’t be set by the seller’s agent; or
- The buyer agent’s commission can’t be split with the seller’s agent
- The buyer agent’s commission can’t be added to the VA loan amount
- The buyer agent’s commission must be considered when determining if the veteran has enough liquid assets to close the loan
- The buyer agent’s commission amount must be recorded on the Closing Disclosure
- The buyer-agent agreement must be part of the sales contract package and kept in the loan file
VA Recommendations on Commissions
These next couple of points are mainly suggestions from the VA. That said, some are also very practical ways to make sure you’re not spending too much.
First, this policy doesn’t prevent a seller from covering the buyer agent’s commission. But if they do, the VA will not see it as a seller concession.
The VA also encourages you to negotiate reasonable and competitive commission rates with agents.
Costs for Veterans Buying a Home
While this policy adjustment will help your offer be more competitive, it could also mean you will pay more out of pocket on home costs during this process. Let me explain.
The pre-approval process, which includes the zero-down payment, credit checks, debt-to-income (DTI) ratio calculations, and other loan requirements stays the same. That consists of the funding fee, which is usually financed into the loan.
However, the VA change means some of the money you would have needed as a down payment with a conventional loan may likely go toward your agent’s commission. After you negotiate, you’ll need to have those funds to cover the commission when you close on the home.
Example:
Suppose you buy a $300,000 home, and your agent’s commission is 3%. This means you’ll need to pay $9,000 in commission costs at closing. This is in addition to other fees and costs during the home-buying process.
Next Steps
The future of these adjusted VA loan policies is uncertain. This rule change takes effect on August 10, 2024. The VA says this is a temporary change and is working on a more permanent policy. Until then, this is how the program will handle buyer agent commissions.
If you’re considering a VA loan, contact a loan specialist. They can help explain the details specific to your situation and guide you through the process to get your dream home.
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