Like other mortgage options, borrowers can expect VA loan closing costs of some kind. The good news is that the VA has protections for Veterans and service members that put a cap on certain fees for VA loans.
The total costs to VA borrowers can vary, and not all costs need to be paid at closing. Let's take a closer look at some of the costs and fees associated with getting a VA home loan.
You can expect your VA loan closing costs to be between 3% - 5% of the total VA loan amount. The exact amount you'll pay will vary based on your location, lender fees and other specifics outlined in your closing documents.
Not all VA closing costs are transaction fees or even related to the VA home loan itself. What you ultimately owe at closing and your overall costs can be broken down into two categories: loan costs and other non-loan costs.
Let's dig into the key differences in each category.
Loan-related costs are tied directly to your home financing and can vary quite a bit from lender to lender. Working with reputable VA lenders who are willing to break down your costs before closing can help. While your final VA loan costs may vary, here's a list of typical VA loan costs you may encounter:
|Origination Fee||Many VA lenders charge up to a 1% flat fee for their services, including processing and underwriting costs. Some lenders break up their costs into multiple fees. Either way, the VA doesn't allow lenders to charge more than 1% of the total loan amount to cover their costs.|
|Discount Points||Your lender may allow you to pay “points” to lower your interest rate. Depending on the situation, this could lead to savings in the long run as you're choosing to pay additional costs upfront.|
|Appraisal Fee||The VA requires an appraisal in most circumstances. They also set the cost and assign an appraiser who will evaluate the home you're purchasing. Typically this fee is between $500-$1,000.|
|Inspection Fees||Depending on the VA appraisal results and the state you’re buying in, you may be asked to get a well, septic or termite inspection. In many states, buyers aren't allowed to pay for the termite inspection, so that cost is often passed to the seller.|
|Title Fee||Also known as “title insurance,” this fee protects you and your lender if any title-related issues are discovered after closing, including liens or other legal matters from the previous owners. Lenders often require this protection.|
|Credit Report Fee||Your lender may charge a credit report fee to help cover costs incurred while pulling your credit. Typically this fee wouldn't exceed $50.|
Aside from any financing-related fees, there are other costs you may see on your closing documentation. Your lender, real estate agent and title company will work together to calculate these final costs just before your closing date. Still, an estimate may be available earlier in the process. Non-loan closing costs may include the following:
|Real Estate Agent Commission||If real estate agents were involved in your homebuying process, their commission will need to be paid at closing. In most cases, all agent commissions will be paid for by the seller.|
|Property Taxes||For government-backed loans, like the VA loan, lenders typically require borrowers to pay their home property taxes through an escrow account, so they don't owe at the end of the year. At closing, you'll build up that escrow account by prepaying your estimated property taxes.|
|Homeowners Insurance||Your homeowner’s insurance provider will require payment to initiate coverage for your new home on your closing day.|
|HOA Fee||If your home is part of a Homeowners Association (HOA), you'll pay your prorated HOA fee.|
|Recording Fees||These are government fees by state and local offices, which cover the cost of recording your deed and other mortgage-related documentation.|
|Daily Interest Charges||Your first mortgage payment won't be due for at least a month after you close, but your lender will require that you prepay the interest between your closing day and the end of the month you close.|
|Home Warranty||Many buyers choose to get a home warranty, which can cover the cost of major repairs in the home, such as an HVAC system. The cost for this optional coverage will be due at closing.|
VA loan closing costs are paid by the homebuyer, seller and mortgage lender. Many costs can be negotiated between each party. For example, the VA allows sellers to pay all of your loan-related costs and up to 4% of the purchase price in additional concessions.
The VA restricts both the amount and types of fees buyers can pay when using a VA loan to protect homebuyers. As a homebuyer, you can typically expect to pay a portion or all of the following costs:
However, there are closing costs that the VA will not allow buyers to pay under any circumstances. See the complete list of VA non-allowable fees and closing costs.
VA loan lenders are not allowed to charge homebuyers more than 1% of the total loan amount to cover their services. For example, if you're getting a $200,000 VA home loan, you cannot pay more than $2,000 in origination and processing costs.
Lenders may charge a flat 1% fee or itemize their costs, but the VA 1% rule stands either way.
The Department of Veterans Affairs allows sellers to pay up to 4% of the buyer's VA closing costs in the form of concessions. Sellers can also contribute to loan-related costs like discount points because these are not considered a concession.
If the seller has any concerns with an increase in their costs, talk to your lender. In some cases, you may be able to increase your overall purchase price on the property up to the appraised value. The seller could then put that additional cash towards your closing costs.
While VA loan closing costs are comparable to — and often less than — other mortgages, there are a few key differences:
No. VA loans never include PMI, even if you put $0 down at closing; it’s one of the many benefits of the VA loan program.
You may be required to pay the VA funding fee to help fund the VA loan program. Many Veterans and service members are exempt from paying the VA funding fee, and others often roll these costs into their mortgage.
The VA funding fee is the only closing cost that can be rolled into your VA home loan. To limit the cash needed to close, some borrowers will offer more for their home and ask the seller to use these additional funds to cover other closing costs.
Experienced VA loan lenders can help estimate your closing costs for you and work with you to achieve your homebuying goals, including limiting the cash needed to close. Compare the Nation's top VA loan lenders here.