VA Loan Closing Costs: What to Expect

When you're preparing to purchase a home or refinance with a VA loan, it's good to know: “What are typical VA closing costs?” Preparing ahead of time helps your loan go smoothly. And you'll have enough money set aside.

VA loans have a tremendous benefit of not having to come up with a down payment. But you will still need to have enough available funds to close on your loan. You can roll some of the closing costs into the loan itself when refinancing. If it’s a purchase transaction, that includes the funding fee. Plus, the seller can pay for some specific closing costs. However, some other fees and expenses will be your responsibility to pay. In this article, you’ll learn: What are typical VA closing costs, and who pays them?

What is a VA funding fee?

A VA funding fee is a one-time payment that an eligible veteran, service member, or surviving spouse pays when getting  a VA-backed loan from a lender like PenFed or a VA direct loan from the Veterans Administration.

The amount of your VA funding fee depends on:

• Type of loan — VA-backed or VA direct
• Your loan amount
• Whether it’s your first time (or later) use of your VA loan entitlement
• Your down payment amount

The VA has a helpful chart you can use to determine your fee.

There’s another possible advantage to a VA loan if coming up with cash at the close is a challenge. You can roll your VA funding fee into the loan itself. Between no down and rolling in the funding fee - you can significantly reduce the cash necessary to close. That’s especially true with a VA loan compared to other loan types. Getting into a home with less money out of your pocket is another reason VA loans are so popular.

What are typical VA loan closing costs?

Here again, is another benefit of a VA loan — the seller can pay for some of the closing costs. These are sometimes called "seller concessions" and include:

• Commissions for real estate
• Brokerage fee if any
• Buyer broker fees
• Termite report

Which VA closing costs does the buyer pay?

There are several fees buyers will need to pay. Here is more explanation:

• VA Funding Fee. The amount can vary, but the VA has a chart that breaks it down.
• Origination Fee. The VA allows lenders to charge as much as 1% of the total loan as origination fees. These fees cover such costs as underwriting, origination, and processing. You may see one combination fee or each fee separate. But collectively, they are not allowed to exceed 1% of the loan.
• Discount Points. You can reduce the overall interest rate of your loan by paying for discount points. One discount point is equal to 1% of the total loan amount. So, two discount points equal to 2% of the total loan amount. If you know you are likely to be in the home for a long time, consider discount points. That way, you can reduce your interest rate even further.
• VA Appraisal Fees. If you are getting a VA loan, you’ll need a VA appraisal for home purchases. The VA sets the fee, and you pay it upfront. Expect it to be approximately $525.
• Title Insurance and Fees. This protects you against liens or other title-related property issues after closing.
• Credit Report. To process your loan, your lender will pull a credit report. The cost is likely to be under $100.
• Insurance and Taxes. As the buyer, you will be responsible for any insurance and taxes on the property.
• Other Inspection Fees. If the property has an older roof, well, or septic, you may need an inspection on these.

Now that you know what VA closing costs are, you’re one step closer to homeownership. The mortgage professionals at PenFed are here to help. And we’d be happy to go over your specific closing costs with you.