VA Loan Closing Costs

When buying a home,  there are generally two out of pocket costs, the down payment, and then loan closing costs. VA loans have no down payment requirement, but VA loans, just like all other home loans still have closing costs.

There are many people involved in obtaining a home loan, they include the lender, title company, state and county fees, appraisal, credit report, land surveys and more. All charge for there services. They all get paid for their services.

You also have up-front costs known as pre-paids. This includes a one time pro-ration of the homes property taxes, and paying for the homes first year of home insurance up-front.

The total amount of closing costs can be high, and shocking if you've never experienced it before.

Oftentimes veterans believe that there are no closing costs associated with a VA loan, or that VA covers your costs. This is not true, but can sometimes feel that way because VA does allow the alternative ways of paying closing costs below.

The best way in the long run is to pay your VA loan closing costs out-of-pocket today. But realistically, that is very hard for most people. The VA loan allows you to pay closing costs many different ways:

• Pay out-of-pocket
• Roll into loan with seller paid closing costs
• Roll into loan with a higher interest rate 
• Any combination of the options

Because of these options, it is very common that most people using a VA loan are able to get into the home with little money out-of-pocket.

Rolling your closing costs, or a portion of them into your loan itself is very popular. The actual term for this is seller paid closing costs, which can be very confusion because in the end, the seller isn't actually paying anything - you are. Just over time.

How it works

EXAMPLE 1: Take a home the seller is asking $200,000 for. If you offer him $200,000, but ask him to pay $5,000 of your closing costs, the seller has accepted $195,000 in their pocket. You could have bought the house for $195,000 and paid your own closing costs. 

EXAMPLE 2: Take a home the seller is asking $200,000 for. The seller will accept no less than $200,000 in his pocket, but you really want $5,000 of seller paid closing costs. Therefore you would increase your offer to $205,000 - and have the seller pay the $5,000.

In both example, you can see YOU are actually paying your own closing costs, but by rolling it into the loan itself, you've eliminated that out-of-pocket expense today.

The maximum amount VA allows to be rolled into the VA buyer's mortgage is 4% of the purchase price.

Contact one of our VA Loan Specialists to discuss this option, as this option needs to be written into the purchase agreement by your Real Estate Agent, and can not be an after thought like a lender credit can.

Another way of rolling in some, or all of your VA loans closing costs is with lender credits. This works by the lender reducing your up-front out-of-pocket closing costs in exchange for a higher interest rate.

Small reductions in costs are achieved with small interest rate increases, while large reductions in closing costs require larger interest rate increases.

Again, you see you are paying your closing costs over time in with a slightly higher interest rate versus paying closing costs out-of-pocket.

Contact one of our VA Loan Specialists to discuss this option.

You can expect all of the following items to be part of your loans closing costs:

• Appraisal
• Credit Report
• State Deed Taxes / Transfer taxes
• County Recording Fees
• Title Company costs
• Title Insurance
• Lender related costs
• Loan Origination
• First year home owners insurance
• Pro-rated property Taxes

You also have your VA funding fee. You are allowed to roll this into the loan itself.

Your VA lender is required to supply you with a Loan Estimate showing you all your costs.

NON-ALLOWABLE VA FEE

The VA does mandate that certain fees can not be charged to the Veteran. Mostly the list includes well know junk fees that unscrupulous, and internet lenders try slipping into many loans.