Getting a home loan and closing on a home purchase comes with costs and fees, no matter what type of loan you’re using. VA buyers benefit from limits on what they can pay, but there are still expenses that need to be paid by the buyer.
When reviewing allowable borrower fees and charges, many of the items can be paid for by the seller of the home and can be negotiable when presenting an offer on a home to the seller. VA allows sellers to pay all of a VA buyer’s mortgage loan-related closing costs and up to 4 percent in concessions, which can cover prepaid expenses like property taxes and homeowners insurance. Please consult with your real estate professional handling the transaction to review these expenses.
Let’s take a closer look at some of the costs and fees that can be associated with getting a VA purchase loan.
Reasonable closing costs may be charged by the lender. These costs may not be included in the loan. The following items may be paid by the veteran purchaser, the seller, or shared. Closing costs may vary among lenders and also throughout the nation because of differing local laws and customs and can include:
The veteran can pay a maximum of all reasonable and customary amounts for any and all of the "Itemized Fees and Charges" designated by VA as defined below plus a 1% flat charge by the lender plus reasonable discount points. Some special provisions apply to construction, alteration, improvement and repair loans.
The veteran can pay a VA Appraiser fee and VA compliance inspectors’ fee. The veteran can also pay for a second appraisal if they are requesting a reconsideration of value. The veteran cannot pay for a second appraisal if the lender or seller is requesting a reconsideration of value or if parties other than the veteran or lender request the appraisal.
The veteran can pay for recording fees and recording taxes or other charges incidental to recording the loan.
The veteran can pay for the credit report obtained by the lender.
The veteran can pay that portion of taxes, assessments, and similar items for the current year chargeable to the borrower and the initial deposit for the tax and insurance account.
The veteran can pay for the hazard insurance premium. This includes flood insurance, if required.
The veteran can pay the actual amount charged for a determination of whether a property is in a special flood hazard area, if made by a third party who guarantees the accuracy of the determination.
The veteran can pay a charge for a survey, if required by the lender.
The veteran may pay a fee for title examination and title insurance, if any. If the lender decides that an environmental protection lien endorsement to a title policy is needed, the cost of the endorsement may be charged to the veteran.
A basic funding fee of 2.15 percent must be paid to VA by all but certain exempt veterans. A down payment of 5 percent or more will reduce the fee to 1.5 percent and a 10 percent down payment will reduce it to 1.25 percent.
A funding fee of 2.40 percent must be paid by all eligible Reserve/National Guard individuals. A down payment of 5 percent or more will reduce the fee to 1.75 percent and a 10 percent down payment will reduce it to 1.5 percent.
VA buyers don’t have to pay the funding fee in cash. Many choose to finance it into the loan.
The following persons are exempt from paying the funding fee:
Please note that the VA has the final say on who is exempt.
The following list provides examples of items that CANNOT be charged to the veteran as "itemized fees and charges." Instead, the lender must cover any cost of these items out of its flat 1% fee.
Please note that oftentimes veterans believe that closing costs are covered by a VA mortgage. While that is not technically true, the same effect can be reached through careful structuring of your real estate contract.
The loan amount will be the purchase price or appraised value, whichever is less (plus the VA Funding Fee). So if you want your closing costs covered by the loan, you need to increase the price and have a stipulation that the seller will pay the closings costs and pre-paid expenses equal to the amount by which you have increased the price. As long as the home appraises for the increased price, you will have the closing costs paid as part of the deal. But that also means you’re financing this cost over the life of your loan.
Talk with your real estate agent and lender about your options in more detail.