If you're a veteran or active-duty military personnel thinking about buying a home, you might want to know what closing costs on a VA Loan 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?
So you've confirmed that you qualify for a VA loan and now the question is - do you pay closing costs with a VA loan? First, we need to understand what closing costs are. 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 offered by the Department of Veteran Affairs 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 a 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 surveying the home's property lines.
Other allowable fees
Discount Points
The purchase of mortgage discount points is available with VA Loans just like other home loans. These points can be purchased from your mortgage lender to reduce the interest rate of your loan. This is something you'll need to consider as a worthwhile upfront expense as there are 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
Non-Allowable fees
With a VA Loan, there are some fees a VA lender can't require you to pay or "Non-Allowable" fees. These include the following charges:
- Attorney
- Underwriting
- Escrow
- Processing
- Document
- 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 negotiated with the seller to pay as part of the sales contract with what's known as a seller's concession. Keep in mind that the 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. Your loan officer should be able to advise you about this in more detail.
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 and monthly payment 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. The VA Home Loan program is an excellent way for military members, veterans, and surviving spouses to achieve homeownership for less. Although there are still costs associated with closing, the combination of non-allowable fees, lender credit, seller concessions, and other benefits like zero downpayments make it a great option for those who have served.
As a veteran myself, I'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, Give us a call or email today to discuss your options with a qualified real estate agent, and let us help you through the process. Be sure to let us know if this or our other military resources have helped.
