If you're a veteran or active-service member thinking about buying a home with a VA loan, you might want to know what closing costs you'll need to pay. While there are some similarities between traditional home loans, VA Home Loans have some unique differences and benefits with closing costs that are important to be aware of.
Here's an overview of the closing costs you'll encounter when purchasing a home with a VA mortgage.
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First, What Are Closing Costs?
Closing costs are fees paid at the end of the home purchase transaction and vary depending on the type of loan you choose. The amount of money you'll need depends on several factors, including the size of the loan, the type of property you're buying, and whether you're purchasing a new or existing home.
Closing costs include everything from title insurance and property taxes to legal services and appraisal fees. VA Loans have some differences from more traditional loan programs in terms of what you'll be required to pay and what you're not allowed to pay - let's take a look at those now.
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What Closing Costs Are Veterans or Military Members Responsible For?
Military members utilizing VA Home Loans have both allowable and non-allowable fees associated with closing costs that you should be aware of before undertaking the loan process.
One way we've learned to remember which closing costs a military veteran or active-duty service member is responsible for is by using the acronym "ACTORS":
A - Appraisal Fees
Appraisal fees are typical for all home loans. You should expect to pay between $425-$875 for a VA Home Loan appraisal fee.
C - Credit Report Fees
Some lenders charge a fee for pulling your credit report. The VA says this fee shouldn't exceed $50.
T - Title Insurance
Title insurance protects the buyer against loss if the seller doesn't own clear title to the property being sold. This certainly makes sense as a required expense for you as the buyer.
O - Origination Fees
When using a VA Loan, lenders may not charge more than 1% of the total loan amount. In comparison, other types of loans typically charge between 0.5% and 1% so it's in line with traditional fees in this regard.
R - Recording Fee
These are fees charged by state and local governments to record your deed and other mortgage info.
S - Survey Fee
A Survey fee is the amount charged for conducting a survey of the home's property lines.
Other allowable fees
The purchase of mortgage discount points is available with VA Loans just like other home loans. This is something you'll need to consider as a worthwhile upfront expense as there's no discounts or special exceptions with a VA Loan.
VA Funding Fee
The VA defines the VA Funding Fee as, "... a one-time payment that the Veteran, service member, or survivor pays on a VA-backed or VA direct home loan. This fee helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn't require down payments or monthly mortgage insurance." Source: va.gov
With a VA Loan there are some fees a lender can't require you to pay or "Non-Allowable" fees. These include the following charges:
- Tax Service
While the above fees are examples of charges the military member isn't allowed to pay, these fees still exist and need to be paid - so who pays these charges?
These fees, including the VA Funding Fee can be paid by the seller as part of the sales contract with what's known as a seller's concession. Keep in mind that seller's concessions are limited to 4% of the purchase price of the home so it's something to factor into the overall total.
So, How Much Are VA Home Loan Closing Costs?
The specific home and details of your loan will determine the exact closing costs you'll incur with a VA Loan but you can expect to pay anywhere between 3%-5% of the total value of the home you're interested in purchasing.
How Can You Limit Your Out-of-Pocket Costs For Closing?
VA loans allow you to include some closing costs in the total loan amount. For example, you can roll your VA Funding Fee into the total loan amount which increases your interest but lessens some of your upfront costs.
Most of the other fees that make up your VA Loan closing costs can't be rolled into the loan but there is the possibility of concessions from the seller, lender or both that can help keep those costs low.
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Final Thoughts on VA Home Loan Closing Costs
As you can see, VA Home Loans have some significant differences from conventional loans and even FHA loans. But, although there are still costs associated with closing for VA Loan recipients, the combination of non-allowable fees, lender credit, seller concessions and of course other amazing benefits like zero downpayment - The VA Home Loan program is an excellent way for military members, veterans and surviving spouses to achieve home ownership for less as a benefit of their military service.
As a veteran myself, we've helped many military veterans and active-duty service members achieve homeownership via VA Home Loans. If you're considering a home purchase or planning your relocation, GET IN TOUCH today to discuss your options and let us help you through the process.