Closing costs are just one more step closer to the completion of your mortgage process. And while these fees are different for loans backed by the United States Department of Veterans Affairs (VA), they’re not inherently more complicated than traditional loans. Before you take on this step of the VA loan process, educate yourself on all the possible closing costs, the required VA-specific funding fee and the advantages you have as an eligible military borrower.
VA Loan Closing Costs
Generally, closing costs for VA home loans are not much different than a traditional mortgage. However, there are some additional guidelines from the VA that you must be aware of.
VA Funding Fee
The VA funding fee is the main differentiator in closing costs for VA home loans. VA loans don’t necessarily require private mortgage insurance or a down payment, so the VA funding fee helps lower the cost of the loan for taxpayers. How much you’ll pay depends on the type of loan and how much you’re borrowing.
Origination Fee
Lenders are not allowed to charge you more than 1 percent of the loan amount for purchases. Make sure you ask your lender about these origination fees for your specific loan. Sometimes, you may even be able to negotiate for a lower cost.
Appraisal Fee
The VA requires borrowers to get a VA appraisal, and these vary depending on where you’re buying. However, the VA limits appraisers on how much they can charge.
Discount Points
If you want a lower interest rate, you may be able to purchase discount points. You may need to determine if this is the best choice for you before you make it to the closing table.
Other Closing Costs
Besides the previous four costs, the other closing costs that you may pay for a VA home loan are typically the same as a traditional mortgage. These can include the following:
- Credit check fee
- Title search and title insurance costs
- Hazard insurance
- Recording fee
- Flood certification fee
- Survey fee
- Prepaid items
- State and local taxes
Not all of these may apply to you and your situation so make sure you speak with your lender to get the full picture of your specific closing costs.
Who Pays for These Closing Costs?
Since there are multiple people involved in the mortgage process, it can be confusing to remember who is responsible for what closing costs. While the following is a general guideline, make sure to confirm these responsibilities with the specific individuals before closing day.
Lender
Your lender may be able to pay for some closing costs like attorney’s fees. Discuss this with your own lender to understand what they can and will pay for.
Seller
Sellers are responsible for the real estate agents’ commissions, brokerage fees, termite inspection and well-water inspections. The seller can also agree to pay up to 4 percent of the total home loan cost in closing costs.
Buyer
You’ll need to pay the VA funding fee, loan origination fee, appraisal fee and anything else not covered by the lender or seller. And as stated above, you can negotiate with the seller to pay some closing costs.
Frequently Asked Questions (FAQs)
It’s likely you’ll have even more questions than the following three. Discuss them with your lender as you go through the motions. Remember: No question is a bad question. You need to be aware of any details concerning your loan.
On average, how much should I expect to spend on closing costs?
As with any home loan, closing costs vary from borrower to borrower. But you may expect to pay anywhere from 3 percent to 6 percent of the total loan value.
How can I reduce my closing costs?
Ask the seller to pay for some closing costs, see if you can roll some of the closing costs into your VA loan, receive lender concessions or find out if you can benefit from a closing costs assistance program.
Are VA loan closing costs tax deductible?
The VA funding fee may be tax deductible, but you can only deduct the amount you paid that year if you want to roll the VA funding fee into your VA home loan.
Get Ready for Closing
Don’t let VA home loans and their specific guidelines deter you from applying for a loan if you’re eligible. Closing costs only slightly differ from traditional mortgages, and you may be able to reduce these fees in a number of ways. And because the VA limits and prohibits some fees for borrowers, you’re also likely to get a favorable deal.
You’re not alone. Don’t forget that working with a lender who has your specific interests in mind as you navigate this step of the mortgage process will help set you up for success. Discuss your worries and needs with them, understand your advantages with the VA and get the most out of your mortgage.
This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to your individual situation.
