How much can a builder give a VA buyer? VA caps seller concessions at 4% of the home's reasonable value, but not everything a builder pays counts toward that cap. Normal closing costs and discount points sit outside it. Extras like paying your VA funding fee, prepaid taxes and insurance, or a temporary rate buydown count inside it.
It's Veterans Day, and to every veteran reading this, thank you. This is a practical one, because builder incentives are big right now and the VA rules decide how much of a builder's offer you can actually use.
What counts toward the VA 4% seller concession cap?
VA's own guidance, preserved on its purchase and cash-out loan fee page, lists what falls under the limit, and payment of discount points is specifically excluded. Here's how common builder incentives usually sort out:
| Builder incentive | Counts toward 4%? |
|---|---|
| Paying your normal closing costs (appraisal, title, recording) | No |
| Paying discount points to buy down your rate permanently | No |
| Paying your VA funding fee | Yes |
| Prepaid property taxes and homeowners insurance | Yes |
| Funding a temporary buydown, like a 2-1 | Yes |
| Paying off your debts to help you qualify | Yes |
On a home VA appraises at $400,000, the cap is $16,000. A builder could cover your normal closing costs and some permanent discount points on top of that, so a "$25,000 incentive" may still fit, depending on how it's split. Your lender has to make the final call on each line, which is why it helps to get the incentive itemized in writing before you sign.
Ask early. It changes which incentive to choose.
What else is different with VA on new construction?
VA wants protection on a new home. According to Veterans United, VA requires a one-year builder warranty or a 10-year insured protection plan, and builders no longer need to register with VA. The home still gets a VA appraisal, and if it comes in below the contract price, you'll need to renegotiate, cover the difference or walk away. On a to-be-built home, a long build also means watching your rate. My post on extended rate locks on new construction covers that.
Two more benefits Texas veterans miss
Veterans receiving VA disability compensation are generally exempt from the VA funding fee, which can save thousands at closing. And Texas offers property tax exemptions for disabled veterans, up to a full exemption on the homestead for those rated 100% disabled or unemployable. I go through both in VA Benefits and Houston Real Estate. If you're going through a divorce with a VA loan, this post on splitting VA entitlement covers that side. And my new construction page explains how I represent buyers with Houston builders.
Frequently asked questions
What is the VA 4% seller concession limit? VA limits seller concessions to 4% of the home's reasonable value. Normal closing costs and discount points paid by the seller don't count toward that limit.
Does a builder paying my VA funding fee count toward the 4%? Yes. Paying the VA funding fee is a seller concession and counts toward the 4% cap, as do prepaid taxes and insurance and funds for a temporary buydown.
Can a builder pay discount points on a VA loan? Yes, and payment of discount points isn't subject to the 4% limit, so permanent rate buydowns can be a strong way to use a builder incentive.
Does VA require a warranty on a new home? VA requires a one-year builder warranty or a 10-year insured protection plan for new construction. Builders no longer need to register with VA.
Who is exempt from the VA funding fee? Veterans receiving VA compensation for a service-connected disability are generally exempt from the funding fee. Your lender confirms eligibility.
This article is general information, not a loan offer or legal advice. VA rules change, and lenders apply them to each loan. Confirm how any incentive will be treated with your lender before you sign.
Last updated November 2026