VA Loan Closing Costs
Table of Contents
- Do VA Loans Have Closing Costs?
- What Are VA Loan Closing Costs and Why Do They Cost So Much?
- Mortgage Origination Fee
- VA Appraisal Fee
- Title Insurance
- Credit Report Fees
- Discount Points
- VA Funding Fee
- Other Fees
- What Closing Costs Could The Seller Pay?
- Are Closing Costs Negotiable?
- Can You Roll Closing Costs Into Your Loan?
- Still Have Questions about VA Closing Costs?
Do VA Loans Have Closing Costs?
One of the questions veterans most frequently ask about VA loans (loans for members of the U.S. armed services or National Guard) is “do VA loans have closing costs?”
The simple answer is yes, they do. You can generally expect to pay 3-5% of your loan amount in closing costs (depending on the home you choose and the value of your loan) plus a VA Funding Fee.
What Are VA Loan Closing Costs and Why Do They Cost So Much?
Closing costs are the fees you pay for the different services and tasks that need to be done in the process of approving any mortgage loan, whether it is supported by the VA or not. To save you from having to pay a bunch of different bills to different people, they are rolled into a single number called “closing costs” and are paid at the time of closing and/or rolled into your loan costs.
Examples of closing costs that could be included in a typical VA loan include:
Mortgage Origination Fee
This pays your mortgage lender for the work to process your loan. For a VA loan, the mortgage origination fee cannot be above 1% of your loan amount but could be as low as 0.5%, depending on the value of your loan. These fees are in line with what a non-VA loan would charge.
VA Appraisal Fee
All mortgage loans require an appraisal, which assesses whether the purchase price you have agreed upon with the seller is reasonable given the property and current market conditions. VA loans require a special set of criteria to be considered, called a VA Appraisal.
Typical fees for a VA Appraisal range from $425 – $875, depending on the value of the home you are purchasing. This fee will be included in your closing costs.
Title insurance is a fee paid to a company to evaluate whether that property is free and clear of any title problems, like lawsuits, liens on the property (debts that must be paid before that property can be sold), or any other problems with the legal title for the property. Once that analysis is completed, the issuer ensures that if they missed something, that problem is theirs, not yours.
Title insurance costs also contain a bunch of other technical elements of processing your loan, like settlement fees, notary fees, etc.
The cost of title insurance is about 0.5% – 1% of the purchase price on a loan and closer to 0.5% on a refinance. These prices may vary between different title insurance companies. You are not required to work with the one your lender recommends, so you may want to shop around.
Credit Report Fees
Your mortgage lender will probably pull the credit reports for each person on the loan a few times during the loan approval process. You should expect to pay $10 – $100 per person on the loan in credit reporting fees.
Some lenders will allow you to pay an extra amount of money at closing to reduce your interest rate for the life of your loan. This payment, called discount points, is available for VA loans too. Payment of discount points can significantly increase the closing cost of your loan but can be worth it if you have the money available at closing because they will reduce your interest and payments for up to 30 years.
Here is an article that will help you decide whether paying discount points will be worthwhile in your circumstances.
VA Funding Fee
The VA Funding Fee is a one-time fee paid to the Department of Veterans Affairs and is unique to VA loans (you won’t have to pay this fee if you get a conventional or another type of loan.) This fee goes towards the funding of the VA loan program.
Some exceptions will mean you don’t have to pay the VA Funding Fee (such as whether you have a service-related disability, are the spouse of a veteran who died in service or from a service-related disability, were awarded the Purple Heart, etc.) that your mortgage lender will discuss with you.
Your VA Funding Fee amount drops as your down payment increases and differs depending on how many times you have gotten a VA loan.
If this is your first time applying for a VA loan, and your down payment is less than 5% of the loan amount, your VA funding fee will be 2.3%. If your down payment is 5% – 9.99%, your VA funding fee will be 1.65%. If your down payment is 10% or more, the VA funding fee will be 1.4%. These fees will be higher for the additional times you get a VA loan.
These payments can be made at closing or rolled into the cost of the loan.
As part of the loan approval process, you will receive a detailed listing of closing costs, so you can see all the costs associated with your loan.
As you go through the process of making an offer to buy a house, you should be aware that one option is to negotiate having your seller pay a portion of your closing costs. Just be aware, though, that doing so makes your offer less competitive than someone else who doesn’t make the same request, so if you are in a highly competitive real estate market, you may want to consider not trying to get the seller to pay a portion of your closing costs.
What Closing Costs Could The Seller Pay?
You can negotiate with the seller of the home to pay up to 4% of the selling price in closing costs, including commissions for buyer and seller real estate agents, brokerage fees, buyer broker fees, and a termite report.
You should discuss with the seller whether they would be willing to pay other closing costs in the form of seller’s concessions. Keep in mind, though, that they are not allowed by law to pay more than 4% of the sale price. They cannot pay for discount points, but having them pay other closing costs could free up your cash to be able to pay for discount points.
For example, if your total loan would be $200,000, the seller could pay up to $8,000 in closing fees. You can make this a condition of your offer: “We are willing to pay $200,000 for your home on the condition that you would pay for $8,000 in closing costs.” Be aware, though, that means that your offer is only $192,000 as a result of that condition, so it makes your offer less interesting than a higher offer without conditions.
Are Closing Costs Negotiable?
Some are. You definitely should ask your lender whether you can get a reduction in closing costs. Sometimes you can get direct cost reductions, other times you can get them to use a less expensive provider (like a different title insurance company) that could reduce your closing costs.
Can You Roll Closing Costs Into Your Loan?
If you’re short on cash when it comes to closing time, it is possible “to roll some of the closing costs into your loan.” That means that instead of your having to pay for those costs at the time of closing, those costs would be added to the amount of your loan.
Note the word some. Not all closing costs can be rolled into the cost of the loan. Ask your lender for the specifics of which ones can and can’t be included in your closing costs.
Just be aware that doing this will cause your monthly payment to increase and it means that you’ll end up paying substantially more in total than you would have paid if you took care of them at closing. Sometimes, though, this could be the only way you can get your loan.
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