VA Loan Closing Costs
Closing costs are the fees that you’ll need to pay at the closing table to finalize your real estate purchase and secure your home loan. As the U.S. Department of Veterans Affairs explains, one of the many advantages that come with using a VA loan is that VA loan closing costs are handled a bit differently. VA borrowers do have to pay a VA funding fee. In return, the VA limits what other closing costs they can be asked to pay.
The VA Funding Fee
The VA funding fee is a one-time charge that’s used to help fund the VA home loan program, reducing its dependence on taxpayers for funding. Due at closing, it can generally be paid in full or rolled into your loan amount. How much is the VA funding fee? That depends. As the VA explains, some borrowers will pay nothing. Most will pay between 1.4 and 3.6 percent. What determines how much you pay? Borrowers who qualify for exemptions will pay nothing. If you don’t qualify for an exemption, the size of your down payment and the number of times that you’ve used the VA loan program will determine how much you’ll need to pay for your funding fee.
The VA Borrower and Other Closing Costs
As Investopedia explains, the VA restricts the closing costs that borrowers using a VA loan can be required to pay. It’s just one of the ways that the organization helps to make buying a home more affordable. How does it work? These are the fees that VA borrowers are permitted to pay:
- VA funding fee. As mentioned earlier, the VA funding fee helps keep the VA loan program running smoothly so that it can continue to serve the needs of service members and veterans.
- VA appraisal fee. A VA appraisal functions as a form of consumer protection. It evaluates the property to ensure that it complies with the VA’s standards for safety and sanitation. It also verifies that the property is worth what you’re paying for it so that you don’t end up underwater after the sale is done.
- Recording fee. When a real estate transaction is completed, the local government needs to legally record the change. The recording fee covers the cost of updating the public records.
- Taxes and insurance. With property ownership comes certain responsibilities. These include the bills for state, local, and real estate property taxes. You’ll also need to pay hazard and title insurance premiums.
- Discount points. Purchasing discount points is a way to snag a lower interest rate. This is an optional buy.
- Origination fee. The origination fee is a catchall fee that lenders can charge to cover their costs. The VA permits origination fees of up to 1 percent.
What about the remaining closing costs? The VA may not allow the buyer to pay them, but they still need to be covered. As Military.com explains, this can happen in a few different ways. The VA allows for the seller to pay up to 4 percent of the buyer’s closing costs. Buyers often negotiate for this as part of the purchase package. Alternately, the real estate agent may offer a credit at the closing table. Or, the lender may offer a credit in return for a slightly higher interest rate on your home loan. In some cases, lenders who normally waive their origination fee will charge a VA borrower. In these situations, collecting this allowable fee is their way of offsetting the charges for fees that the VA doesn’t allow.