August 25, 2023
Everything You Need to Know About VA Loan Closing Costs
VA loans, sponsored by the Department of Veterans Affairs, boast multiple benefits, including the potential for reduced closing costs. This comprehensive guide aims to demystify everything about VA loan closing costs.
What are mortgage loan closing costs?
Mortgage loan closing costs include fees charged for various services performed during the home buying process. These fees include loan origination fees, appraisal fees, title searches, title insurance, and escrow deposits, among others. These costs facilitate a seamless transition of property ownership, making them a critical part of the mortgage process.
VA mortgage closing costs, while sharing similarities with those of conventional mortgages, include unique costs like the VA funding fee. Understanding these specific costs can equip you to navigate the VA loan process more effectively, making you a savvy buyer.
Do VA loans have closing costs? What are they?
Indeed, VA loans have closing costs. These costs cover a variety of expenses encountered during the home buying journey. For VA loans, these costs include the VA funding fee, a mandatory charge unique to VA loans. Other costs may include appraisal and inspection fees, title insurance, credit report fees, and other processing fees.
An essential part of VA loans is the loan origination fee. This charge by the lender covers the services involved in preparing and servicing the loan. This fee, however, is capped at one percent of the loan amount, ensuring that VA loan borrowers are adequately protected.
What is the VA loan funding fee?
The VA loan funding fee is a one-time charge payable to the Department of Veterans Affairs. This fee is aimed at offsetting the loan's cost to taxpayers, given that VA loans don't require down payments or private mortgage insurance. Interestingly, this fee can be rolled into the loan, easing the initial financial burden on the borrower.
Importantly, some borrowers are exempt from this funding fee. These include veterans receiving VA disability compensation and surviving spouses of veterans who died in service or from service-related injuries.
Who pays VA loan closing costs? How much are they?
Both the buyer and seller share VA loan closing costs, but the division of these costs is often negotiated between the parties. The VA puts a limit on the costs a veteran buyer can pay, but does not cap what the seller can contribute, possibly easing the buyer's financial burden.
These costs typically range from one percent to five percent of the loan amount, depending on various factors such as the state of purchase, transaction specifics, and the lender. Each lender may offer different closing costs, emphasizing the importance of shopping around before settling for a lender.
How can I save money on my VA loan closing costs?
Several strategies can help lower your VA loan closing costs. One method involves seller concessions, where the seller agrees to pay part or all of the buyer’s closing costs. In VA loans, sellers can pay all of a buyer’s loan-related closing costs and up to four percent in concessions.
Lender credits offer another way to reduce costs. Here, the lender can offset some of your costs in exchange for a higher interest rate on your loan. Plus, closing costs can be rolled into VA loans, reducing the immediate cash outlay at closing.
Further considerations for VA loans
Remember that VA loan fees can be paid by the buyer or seller, which can provide significant savings for buyers. However, these costs will vary depending on a range of factors, including the specifics of the purchase and the lender you choose.
If you’re refinancing with a VA loan, remember that these, too, come with closing costs. They apply similarly to those in the initial mortgage. Such costs can include appraisal fees, origination fees, and credit report fees, among others. But remember, these costs can be rolled into the refinancing loan, reducing the immediate financial burden.
Navigating VA loan closing costs doesn't have to be daunting. With the right information and a reliable partner, you can make the most of your VA loan benefits and move one step closer to your dream home. We're here to ensure your journey to homeownership is less taxing and more rewarding.
Our VA Loan eBook can guide you through the process step by step. Download it here.