Unraveling the Mystery of VA Closing Costs

How much are closing costs on a VA loan?

VA loan graphic1. Understand the VA loan closing costs, such as the origination fee and the funding fee, to budget accordingly when considering a VA loan to purchase a home.
2. Make sure you have available funds when closing on a home by familiarizing yourself with the VA loan closing costs.
3. When exploring a VA loan to purchase a home, consider the VA loan closing costs to plan your budget appropriately.
4. Know the VA loan closing costs, including the origination and funding fees, to ensure you are financially prepared when closing on a new home.

Can VA Closing Costs Be Financed?

Veterans worry about the closing costs when purchasing their first home. The VA funding fee can be rolled into the loan, but all other closing and prepaid expenses must be paid upfront. By understanding the costs associated with closing on a VA mortgage, veterans can better prepare for the process. Veterans should research the closing costs associated with a VA loan and plan accordingly.

Does a VA Loan Cover Closing Costs?

Man calculating closing costsA VA loan does not cover closing costs, but the Veteran's Administration (VA) allows the seller to pay all or a portion of the buyer's closing costs. This can significantly benefit the buyer, saving them thousands of dollars.

The VA allows the seller to pay all or a portion of the buyer's closing costs, thus saving them thousands of dollars. The VA charges a funding fee, typically rolled into the loan amount, and the interest rate for a VA loan is usually less than a conventional mortgage. Additionally, a VA appraisal is required, and the buyer typically pays the cost. The Department of Veteran Affairs thus offers a beneficial loan program that can help veterans and their families obtain homeownership.

How Much Are VA Closing Costs?

You may pay between 2% and 5% of the loan amount in closing costs, depending on the loan amount, the seller, and if you pay the VA funding fee. Additionally, the VA funding fee, usually around 2.3% of the loan amount, can be paid upfront or included in your loan.

VA Loan Closing Cost Grants

Closing costs can be a significant expense for veterans, but closing costs can be reduced or eliminated with a closing cost grant.
Veteran.com offers a list of down payment assistance programs by state.

VA Mortgage Closing Costs

Some of the most frequent closing fees associated with VA mortgages are outlined below, giving you an understanding of some of the closing and prepaid fees you may have. This list is not exhaustive.

This list will provide a comprehensive overview of some of the closing costs and prepaid fees typically associated with VA mortgages, helping you understand the full range of expenses you may encounter during the closing process. However, it is not meant to be an exhaustive list, as other fees may apply.

Appraisal Fee

Purchasers using a VA loan must have a mandatory VA appraisal, and the VA, not the lender, determines the associated fees that vary based on the location of the purchase. Prospective purchasers must pay this expense upfront. An overview of the VA appraisal fees applicable to your state can be found on the VA website.

Discount Points

You may reduce the overall interest rate of your loan by paying "points," which is equivalent to one percent of the total amount you are borrowing. This is commonly referred to as a "permanent buy down" because you make an up-front payment to acquire a lower interest rate. Though not common among purchasers using VA benefits, you may incur a prepayment penalty, a cost associated with loans.

Credit report

The VA estimates that lenders should spend at most $50 to determine an individual's creditworthiness using a credit report, which is a detailed account of their credit history, including information about where they work, live, and borrow money.

Flood Certification

The lender will obtain a flood certification to determine if the property is located in a flood plain. If it is, you must maintain flood insurance coverage at all times and pay the annual premium. As homeowner's insurance policies do not usually cover flooding, the lending institution requires that the house is insured against flooding. You must calculate the annual premium and have the same cash before finalizing the loan. You are also responsible for paying the first year's premium when the transaction is completed, which may increase the amount required upfront.

Home Warranty

A home warranty is an annual service contract that provides coverage for the maintenance, repair, and/or replacement of essential home system components and major home appliances that are expected to fail over the course of the contract's duration. A home warranty is offered by the home seller as a sales incentive. A home warranty is not required by the Veteran's Administration.

Homeowners Association (HOA) Fee(s)

Additional charges may be incurred when closing on a piece of land that is part of a homeowners' association. Homeowners' associations rarely require yearly dues; however, this should be factored into the closing costs.

Origination charge

The Department of Veteran Affairs allows lenders to charge up to 1 percent of the total loan amount to cover the expenses of loan origination, processing, and underwriting. Lenders may pick and choose from several different fees, as long as the sum of those fees does not exceed 1 percent, or they may opt to charge a flat 1 percent loan origination fee. VA purchasers can pay specific fees that would not usually be allowed if the lender does not impose the flat 1 percent fee.

Homeowners Insurance

Before purchasing a house, you must get homeowners insurance covering the property for the following year. Additionally, an escrow account will be set up to guarantee the premium payment with an annual amount broken down into 12 equal installments. Usually, the first year's premium costs will be covered by the closing expenses when you purchase a home.

Property Tax Escrow and Proration

At settlement, you will prorate the property taxes so that if the seller has paid the entire tax bill, you will reimburse them an amount corresponding to the time you own the property.

For example, if annual real estate taxes amount to $1,200 and the seller has paid them, and your closing occurs on the last day of June, you will reimburse the seller for the property taxes from July 1 to December 31.

However, if the property taxes have yet to be paid for the year, the seller will reimburse you an amount corresponding to the time they occupied the home. The lender will also establish an escrow account to pay the property taxes when they come due.

In addition to sorting out the real tax proration, the lender will establish an escrow account to pay the property taxes when they come due.


Per Diem Interest

Your mortgage is paid in arrears, which means that the payment you make each month really covers the cost of the month before that in which you occupied the property.

Therefore, if you close around the middle of September, the first payment on your mortgage wouldn't normally be due until the beginning of November. However, creditors will charge you prepayment interest on the loan for the period of time between the closure of your loan and the end of the month in which you close.

Lenders determine it based on a per-day rate (the annual interest expense divided by 365 days in a year equals one day's payment of interest). At the time of closing, you are responsible for making that prepayment.

Recordng costs and fees

State or local governments will charge a fee to record your deed and other paperwork about your mortgage. Any interested parties will have access to certain parts of your real estate transaction because these details will be documented in public records. The fees associated with the recording of your deed and other paperwork related to your mortgage will be paid to state and local governments. To ensure transparency, your real estate transaction will be documented in public records, so anyone interested can access specific details about your transaction.

Title Insurance

Title insurance protects lenders and homebuyers from title-related difficulties such as liens, legal faults, and other problems that might arise after the closing. To safeguard their financial stake in the property, lenders will often require borrowers to acquire lender's title insurance. To ensure that both you and the property owner are secure, you should strongly consider purchasing owner's title insurance, which has a one-time fee in many states and is regulated by the state.

Well, septic and termite inspection fees

Depending on the property and other relevant factors, the buyer must consider whether one or more inspections are necessary. VA purchasers are allowed to pay for a termite inspection, even if it is not required, and they can also pay for any repairs needed because of issues with the well, the septic system, or termites.

Who Pays the VA Loan Closing Costs and Fees?

Active-duty service members and veterans can work with their lenders to negotiate fees, look into grants or other assistance programs, and shop around for the best deal.

Active-duty service members and veterans can take advantage of VA home loans, but they should know that closing costs are typically between 2% and 5% of the loan amount. For example, a $200,000 loan could come with up to $10,000 in closing costs.

However, borrowers may be exempt from paying specific fees. They can work with their lender to negotiate fees, look into grants or other assistance programs, and shop for the best deal to reduce or even avoid their VA loan closing costs.

VA Loan Closing Costs Paid by Seller

The VA loan program enables military veterans to purchase homes with no money down and no mortgage insurance. To further help them, sellers can cover all or some closing costs. This can benefit the seller by assisting them in selling the home more quickly and at a higher price. If the seller decides to pay any closing costs, the amount and terms must be stated within the sales contract, and the buyer is not responsible for those costs.

Lender Fees and Closing Costs on a VA Loan

You can have your lender pay your closing costs if you are a veteran. Your loan officer can explain the option of premium pricing, in which they can offer you a higher interest rate in exchange for a closing cost credit. This will increase your monthly mortgage payment, but it may benefit some home buyers.

VA Home Closing Costs Rolled Into Loan

The VA funding fee is the only expense that can be rolled into the loan amount. This fee helps to offset the cost of the VA loan program and ensures that it remains self-sustaining. Other closing costs, such as appraisal and title insurance fees, may not be rolled into the loan amount.
The seller is allowed to pay some or all of the closing costs. The prepaid costs may be paid up to four percent of the sales price or appraised value, whichever is less. This can help to reduce the out-of-pocket expenses for the borrower further.

VA loans are available through private lenders, such as banks and mortgage companies.

What is a VA Loan Funding Fee?

For many military members and veterans, a VA loan is the best way to finance a home. But what is a VA loan funding fee, and how much does it add to the cost of the loan?

A VA loan funding fee is a one-time fee charged by the Department of Veterans Affairs to help cover the cost of the VA home loan program. The fee is added to the borrower’s loan balance and can be paid upfront or rolled into the monthly payments.

VA loan closing costs are different from conventional loan closing costs in that they include the VA financing fee but do not include many of the regular expenses associated with non-VA loans, such as rate lock and escrow fees. Conventional loan closing costs include both of these fees.

For most borrowers, the VA funding fee is 2.15% of the loan amount for first-time use of their benefit, and 3.3% for subsequent use. For borrowers with service-connected disabilities, the funding fee is waived entirely. There are also reduced fees for certain groups such as reservists and National Guard members.

Conclusion

To be adequately prepared, it is essential to be informed of the potential closing costs associated with a VA loan. Research and questioning should be done to ensure that all associated costs are known.

SOURCE: VA Funding Fee and Loan Closing Costs

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