VA loan closing costs can be confusing for veterans and service members looking to buy a home. Understanding these costs upfront can make a significant difference in your home buying journey. VA loan closing costs typically range from 3% to 5% of the total loan amount, but the exact figure depends on several factors, including your credit score and chosen loan program.
Table of Contents:
- Understanding VA Loan Closing Costs
- Breaking Down VA Loan Closing Costs
- The VA Funding Fee: A Unique Closing Cost
- Lender Fees and VA Loan Closing Costs
- Third-Party VA Loan Closing Costs
- Prepaid Costs and Escrow
- Can VA Loan Closing Costs Be Rolled Into the Loan?
- Seller Concessions and VA Loan Closing Costs
- Comparing VA Loan Closing Costs to Other Loan Types
- Preparing for VA Loan Closing Costs
- FAQs about VA Loan Closing Costs
- Conclusion
Understanding VA Loan Closing Costs
When getting a VA loan, closing costs are unavoidable. These are fees and expenses paid when finalizing your mortgage.
VA loans offer many benefits, like no down payment, but they still have closing costs.
The Department of Veterans Affairs (VA) limits what borrowers can pay. This protection is in place to keep the VA loan program affordable. Even with these limitations, you still have costs to consider, including discount points, and if needed a construction loan.
Breaking Down VA Loan Closing Costs
Here’s a breakdown of typical VA loan closing costs:
| Closing Cost Type | Description | Typical Range |
|---|---|---|
| VA Funding Fee | Paid to the VA to support the program. | 1.4% – 3.6% of the loan amount |
| Origination Fee | Charged by the lender for processing the loan. | 0% – 1% of the loan amount |
| Appraisal Fee | Cost for a VA-certified appraiser to assess the home’s value. | $425 – $800 |
| Title Insurance | Protects you and the lender from title issues. | 0.5% – 1% of the purchase price |
| Credit Report Fee | Cost to obtain your credit history. | $30 – $50 |
The VA Funding Fee: A Unique Closing Cost
The VA funding fee is unique to VA loans. It helps sustain the program.
The amount depends on your service history, down payment (if any), and if you are a first time VA loan user or a refinancing loan borrower.
For first-time users with no down payment, it is usually 2.3% of the loan amount.
Some veterans, such as those receiving VA disability compensation, or surviving spouses, might be exempt.
More information on exemptions can be found at the U.S. Department of Veterans Affairs.
Lender Fees and VA Loan Closing Costs
The VA limits what lenders can charge for origination fees (up to 1% of the loan amount).
This rule protects VA borrowers from excessive lender fees.
Lenders can charge a 1% origination fee, or they can charge fees separately if the sum stays below the limit.
Itemized fees might include:
- Application fees.
- Underwriting fees.
- Processing fees.
- Document preparation fees.
Review these fees with your lender and ask questions if needed.
Third-Party VA Loan Closing Costs
Besides lender fees, you will also pay fees to other parties. These third-party costs are for services required for closing but not performed by the lender.
Appraisal Fee
All VA loans require a VA appraisal. This appraisal helps determine the property value and ensure the property meets Minimum Property Requirements.
Appraisal fees range between $425-$800.
Title Insurance and Search Fees
Title insurance protects the lender and you from issues with the home’s title. The cost depends on the loan and ranges from 0.5% to 1% of the price.
Additional title search fees apply to ensure there are no problems with the home’s title, such as liens.
Recording Fees
Local government fees to record the home’s purchase documents.
These fees range from $20 to $250.
Prepaid Costs and Escrow
Prepaid costs and escrow items aren’t closing costs, but you will pay them at closing.
Homeowners Insurance
The first year’s premium is typically due at closing.
Costs depend on the property’s value, your location, and desired coverage.
Property Taxes
A portion of annual property taxes are typically due at closing.
This depends on the closing date and when your property taxes are due.
Mortgage Interest
Mortgage interest is due for the period between the closing date and the end of the month. This means that if the home purchase was done mid-month, your first official monthly payment is still due for the month of the purchase. If this does not sound correct, reach out to your financial advisor to determine if there are better solutions. Depending on which option is used, your mortgage rates or loan rate may change. There may be even additional discounts available.
These prepaid costs are often placed in an escrow account. Lenders use this account to pay these expenses on your behalf.
Can VA Loan Closing Costs Be Rolled Into the Loan?
Only the VA funding fee can be included in the loan amount. This is helpful if you’re low on cash, but your loan balance will be higher.
You have a few options for other closing costs:
- Pay them with your own funds.
- Negotiate with the seller.
- Consider lender credits (often come with higher loan rates).
Discuss these options with your lender to choose what works best for you. A good balance transfer could also be useful here.
Seller Concessions and VA Loan Closing Costs
With VA loans, sellers can contribute up to 4% of the home’s sale price towards the buyer’s closing costs and closing costs and concessions. These contributions are known as seller concessions and they can be helpful when paying fees.
This can greatly reduce closing costs. In competitive markets, sellers might not agree to it.
Still, it is always good to ask and you could save money.
Comparing VA Loan Closing Costs to Other Loan Types
VA loan closing costs compare favorably to other loans. A few advantages to be aware of are no private mortgage insurance (PMI), limit on origination fees, and seller concessions of up to 4%.
- No PMI. PMI isn’t required for VA loans. Conventional and FHA loans typically need PMI if you make a small down payment.
- Origination Fee Limit. Capped at 1%, this helps limit the loan origination fee and total closing costs.
- Seller Concessions. Unlike a auto loan or student loan, these can significantly lower the closing costs burden. VA borrowers have opportunities to lower the fees via seller contributions.
VA loans require a funding fee not found with other mortgages. For some, the funding fee might initially make a VA loan’s closing costs higher, but it can be a bad credit or no credit option in many cases.
The long-term advantages, however, typically offset this initial cost. The funding fee and streamlined refinance option is great.
Preparing for VA Loan Closing Costs
Follow these steps to prepare:
- Get a Loan Estimate from each lender. This outlines estimated closing costs.
- Compare loan offers and associated fees from multiple VA lenders. Find out about lender credits and streamline refinance options.
- Ask your lender for clarification if you are unclear about any fee. Talk to a financial advisor as well if you’re uncertain what fees are normal and customary.
- Negotiate with the seller and the lender on rates and terms to potentially reduce costs and fees.
- Start saving early to pay your closing costs.
FAQs about VA Loan Closing Costs
Do I pay closing costs with a VA loan?
Yes, closing costs are required with VA loans. The VA sets limits on some costs, but several remain your responsibility. The borrower fees are always paid for by you unless seller concessions pay for it.
What is the 4% rule on a VA loan?
Sellers can contribute up to 4% of the home’s price toward your closing costs. Consider paying closing costs when exploring loan refinance options or streamline refinances as the loan programs have different fee structures. Business loans can help you grow your business, and a money market or other savings accounts could help when investing or building emergency funds.
How much are closing costs in VA?
VA closing costs range from 3% to 5% of the total loan amount, varying due to the home’s purchase price, the location, and your individual loan.
Can closing costs be included in a loan?
For VA loans, only the funding fee may be included. Other closing costs usually require upfront payment or coverage via seller concessions or lender credits.
Conclusion
Understanding VA loan closing costs is essential to the homebuying process. While these costs might seem overwhelming initially, VA loans often provide substantial long-term savings over other loans.
Familiarize yourself with the different costs and explore payment options. Working with your lender throughout the process will make a big difference.
Don’t let closing costs stop you from utilizing your VA loan benefits. With planning and good advice, homeownership and your military service are achievements you should be proud of.
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