VA Loan Changes on Paying Commissions

In an effort to ensure the competitiveness of VA loans in home buying, the VA announced it would allow buyers to pay their agent’s commission fees. The change is a major shift in VA policy for its home mortgage program, which has never allowed a homebuyer to pay real estate agent commissions.  

“Veterans using VA home loan benefits can now pay reasonable and customary amounts for certain charges — including commissions and other broker-related fees — thus ensuring that they remain competitive in the rapidly changing housing market,” said Under Secretary for Benefits Joshua Jacobs. 

Why Make This Change with the VA Loan Program?

The change comes in the wake of a proposed court settlement with the National Association of Realtors (NAR) in March, which could end or significantly remake the traditional practice of the home seller paying the real estate commissions to both the buyer’s agent and seller’s agent. Historically, the VA banned anyone receiving a VA loan from paying a buyer broker’s commission fee. 

The proposed settlement left many veterans and active duty servicemembers in limbo about what would happen to their prospects of getting a home. The concern being, that if a seller were picking between an offer where they only had to pay their agent’s commission or one where they have to pay for both agents’ commission (VA Loan), they wouldn’t pick the VA loan since it would cost the seller more.

“We always want to put Veterans and their families in the best possible position to buy the homes they want, and that’s what this update is all about,” Jacobs added. 

The rule will go into effect on August 10, 2024, however it is not a permanent policy.  

VA Loan Rules for Paying Buyer Broker Commissions

The temporary fix to the issue now allows VA loans to be a more competitive offer in the housing market. However, there are still rules a buyer must meet when paying buyer agent’s commission fees. 

1. The home is in an area where either listing brokers cannot set buyer-broker commissions through multiple listing postings, or buyer agent’s compensation cannot be set by or be split with the seller’s agent.
2. The buyer agent’s commission cannot be financed through the total VA loan amount. 
3. Buyer-broker’s commission must be considered when determining if the veteran has enough liquid assets to close the loan.
4. An invoice is not necessary for the buyer’s agent commission, but the amount paid by the homebuyer must be recorded on the Closing Disclosure, and the buyer-broker representation agreement must be part of the sales contract package and retained in the loan file.

The VA also encourages that veterans and servicemembers work to get reasonable, competitive commission rates with their buying agents. This policy change doesn’t prevent sellers from still paying the buyer broker’s commission. However, if the seller were to pay the buyer agent’s commission, the VA will not treat it as a seller concession. 

Costs for Veterans Buying a Home

This policy could change the landscape of what you will pay in the homebuying process, and when you will pay it. First, the pre-approval process, zero-down payment, no PMI, the credit check and all the stuff needed to get the actual loan remains the same. That includes the funding fee, which is usually financed into the loan. 

Where things change is how much money you may need upfront to find a home. The benefit of the VA loan is the money you would have needed with a conventional loan as a down payment can now go toward other moving costs. Now that you can pay a buyer-broker’s commission, you’ll need to find a realtor, and negotiate that commission. From there, you’ll be responsible for covering that commission upon closing, so you’ll need to make sure you’ve got what you need to finalize that agreement with the agent. 

So if you agree to a $260,000 home, and your agent’s commission is 2.5%, you’ll need to be ready to pay out $6,500 in commission costs when you close. That’s on top of any other fees or costs you are responsible for during the home-buying process.

What’s Next?

The future is a bit ambiguous when it comes to adjusted policies with the VA’s home loan program. What we do know, this rule change goes into effect on August 10, 2024. We also know the VA says this is just a temporary change, and that the agency is working on a more comprehensive, and permanent, measure. But until that policy is unveiled, this is how the program will operate regarding buyer agent commissions. 

If you’re wanting a VA loan, make sure to reach out to a loan specialist. They can help break down the details specific to your situation, as well as walk you through everything you may need to get that dream home.