"How much do I pay up front?"
That is one of the most common questions asked about VA home loans, and the answer depends. Every loan is different and every borrower has unique needs. Eligible VA borrowers looking for a no-money-down VA home loan often hope the phrase "no money down" means "no money spent upfront."
That’s not always the case, although initial costs of a VA loan compare favorably to those of a conventional mortgage. The VA does have a list of items the buyer may pay for as part of the home loan process. Some VA mortgage costs can be financed into the loan total, while some costs cannot.
There are a few upfront costs all VA loan borrowers should be familiar with prior to closing.
Making a purchase offer on a home often comes with a deposit, known as earnest money. This deposit simply confirms that you’re a serious potential buyer. If the loan offer dies and there’s no progress made, then the buyer can typically get repaid the earnest money. There’s no set figure for how much earnest money to pay, but anywhere from a few hundred to a few thousand dollars is common.
If the loan process continues and the offer is accepted, buyers can put the earnest money toward closing costs, or a down payment, if there is one.
There are no loopholes to avoid VA appraisal, however it’s possible to get sellers to repay buyers for the expense. The VA uses appraisals to evaluate the property’s fair market value and to help ensure the property is safe and sound. The appraisal fee differs from state to state, but for a single-family property, it’s usually $425.
The VA does not guarantee that homes are free from problems or defects.
The purpose of appraisals and home inspections are similar, but not the same. Appraisals are not nearly as thorough or holistic an analysis of the home as home inspections, which are not mandatory.
An inspection looks at finer details to see if there are damages or risks to the property, such as pest infestations, water damage, foundation cracks, roof problems, chimney damage or anything that would pose physical threats or require serious repairs.
Home inspections give military homebuyers a great idea of the property’s condition. Therefore, it’s great leverage for renegotiating the offer or withdrawing completely. A quality home inspection might set you back $300 or more. You might want to get one of these before you get an appraisal.
Lenders provide Loan Estimates once borrowers have executed on a full loan application. This estimate offers a cursory look at closing costs. Buyers can negotiate with sellers and ask them to pay some or all of these costs.
They’re not required to pay anything on a seller’s behalf. But most sellers dealing with homebuyers using VA loans take on at least some of the closing costs. Sellers may even pay up to 4 percent of the loan in concessions, which can cover a borrower’s liens or judgments or even prepaid taxes and insurance. But that isn’t always the case, meaning VA buyers can be on the hook for these costs at closing.
The aforementioned upfront costs need to be budgeted and should be included early in financial planning. The best way for a potential VA borrower to get started is to talk with a VA loan lender and ask what ballpark amounts should be expected in these areas, what's allowed to be built into the loan and what isn't.