As with most components in the VA home loan process, closing costs will look different from other types of mortgage loans. Here’s where VA closing costs diverge from the traditional home buying process.
Non-Allowable Fees
When you choose a VA loan, there are some fees that the lender cannot require you to pay, known as non-allowable fees. A few include any prepayment penalties, settlement charges and attorney fees from the lender.
When you’re using a different type of mortgage – such as a conventional loan – you may be required to pay attorney fees from the lender and settlement charges. Financing with a VA loan allows you to avoid these costs.
However, there are some allowable fees that might be required. These include the VA funding fee, loan origination fees, recording fees, credit report fees, discount points, title insurance and other closing fees.
A lender will charge a mortgage origination fee for underwriting and processing the loan. When you use a VA loan, there are limits on the fees that lenders can charge.
VA borrowers can’t be charged more than 1% of the total loan amount as an origination fee when using a VA loan. Typically, mortgage loan origination fees range from 0.5% – 1% of the total loan amount, which is in line with what you might pay with a different type of mortgage loan.
VA Funding Fee
The VA funding fee is a unique cost when you take out a VA loan. This is a one-time fee that you pay to the Department of Veterans Affairs. The point of the funding fee is to support the continuation of the VA loan program.
The cost of the funding fee depends on what type of mortgage you are getting (a home purchase or refinance), how many times you’ve used your VA loan benefit, and how much you are putting as a down payment on the home purchase price. The funding fee represents a percentage of your loan amount, so the larger the down payment you make, the smaller your funding fee will be.
For example, let’s say you make a down payment of less than 5% on your first home purchase using the VA loan. With that, you would have to pay a funding fee of 2.15% of the total loan amount. But if you made a down payment of 10% or more, then your funding fee would only be 1.25%.
But there are some unique cases in which you wouldn’t have to pay the funding fee at all. You don’t have to pay the funding fee if you are:
Receiving, or eligible to receive, VA compensation for a service-related disability
The surviving spouse of a veteran who died in service or from a service-related disability
The recipient of the Purple Heart
If you aren’t sure that you qualify for a VA funding fee waiver, talk to your mortgage lender. They can verify this with the VA.
VA Appraisal Fee
In any home purchase, you’ll likely have to pay an appraisal fee. But when you choose a VA loan, there is a specialized VA appraisal fee.
You should expect to pay $425 – $875 for a VA appraisal fee, which will be included in the closing costs.
Discount Points
Mortgage discount points are available with most types of home loans, including VA loans. When you choose to buy discount points, you’ll be expected to cover the costs at the closing date.
You’ll have to assess your situation to determine if the upfront cost of discount points is worth it for your situation. Our complete guide to mortgage points can help you decide.
Who pays closing costs on a VA loan? The buyer is typically responsible for paying for things like the VA funding fee, loan origination fee and more. However, the seller might be able to contribute; they can pay closing costs up to 4 percent of the total home loan price.
Seller closing costs in Virginia range from 8% to 10% of the home selling price. It also depends upon many factors like taxes, mortgage payoff, property closing costs, etc. You can use a seller closing cost calculator to get a proper estimate of how much you will need to pay in the real estate transaction.
The seller, lender, or any other party may pay fees and charges, including discount points, on behalf of the borrower. VA regulations limit charges “made against or paid by” the borrower. They do not limit the payment of fees and charges by other parties.
If the lender is charging the 1 percent fee, they are not allowed to tack on additional charges for things the VA considers overhead. The purpose of the one percent rule is to protect Veterans from excessive fees and ensure the cost of obtaining a VA loan remains affordable.
However, low costs don't necessarily mean no costs. Like other types of home loans, VA loan borrowers will have to pay fees known as closing costs to lenders for processing their loan. Fortunately, VA loan borrowers have options to reduce the amount they pay out of pocket.
What is the VA Funding Fee? This is a fee that is charged to the veteran borrower to help offset the costs of the home loan program. It is the only closing cost that can be rolled into your VA Loan. If you have been rated eligible to receive VA compensation, you may be exempt from this fee.
Borrowers can purchase VA loan points at closing to lower the interest rate on their VA loan, but it's important to do the math to ensure the payoff is worth it. Generally speaking, you'll want to remain in the home for several years in order to break even when purchasing VA loan points.
VA regulations authorize loan holders with automatic authority to “charge a reasonable fee, not to exceed the lesser of $300 and the actual cost of any credit report required, or any maximum prescribed by applicable State law, for processing an application for assumption and changing its records.”2 Whereas loan holders ...
Grantor tax: The buyer covers most transfer taxes in Virginia, but the seller does have to pay a grantor tax, which in most of the state comes out to about $1 per $1,000 in home price. Northern Virginia sellers can expect to pay more.
Funding fee for purchase loans or construction loans
Fees for a first VA purchase loan or construction loan are 2.15% of the loan amount with a down payment less than 5%, 1.5% of the loan amount with a down payment of 5% to 9.9% and 1.25% of the loan amount with a down payment of 10% or more.
The buyer, seller or lender can pay for the pest inspection for a VA loan. Previously, a common pain point for many buyers and sellers was that the home buyer wasn't allowed to pay for the inspection if they have a VA loan.
The highest value you can be assigned is a 100 percent VA disability rating, which means you qualify as completely disabled. Disability ratings are assigned based on medical records provided by your doctor, the results of a VA claim physical examination, and any other relevant information.
An evaluation for compensation purposes that has been continuously in effect for 20 or more years is protected whether or not the Veteran elects to receive the compensation.
If you have a 100% Permanent and Total (P&T) rating, it's unlikely you'll be re-evaluated or have your rating reduced, unless you've done something to trigger a VA review of your case.
VA guidelines allow sellers to pay up to 4% of selling price in concessions. VA loans have a Funding Fee that buyers typically pay but could fall on the seller with negotiation.
You can pay costs by credit card before closing, not at closing. And the fees must be customary, the types that homebuyers typically pay before closing. The closing cost you put on your credit card may not exceed 2% of the loan amount. For example, if your loan amount is $350,000, you could charge up to $7,000.
Introduction: My name is Patricia Veum II, I am a vast, combative, smiling, famous, inexpensive, zealous, sparkling person who loves writing and wants to share my knowledge and understanding with you.
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