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When you are purchasing your home with the assistance of the Department of Veterans Affairs, it’s crucial to consider VA home loan closing costs.
The zero-down option is the most significant reason eligible service members or their spouses turn to VA loans to buy their homes.
However, just because VA loans offer a zero-downpayment mortgage doesn’t mean there won’t be additional costs to buying a home.
Let’s look at general closing costs in general and VA home loan closing costs in detail to see what you need to know.
What are closing costs?
When buying any home today, closing costs will almost always be included.
These costs may come in the form of different fees or service costs from various providers that are a part of the home-buying process.
These costs might include
- Property appraisals
- Mortgage fees
- Title insurance fees
- Attorney fees
- Possibly other costs, depending on the loan product or the state in which you’re purchasing
Some of these costs might be fixed, while others might be negotiable. The seller and buyer might also negotiate who pays for the closing costs.
In general, most borrowers can expect to pay 2-5% of a home’s purchase price for all their closing costs.
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Are closing costs different for a VA loan?
The process, requirements, and characteristics of a VA loan differ significantly from other types of home loans. So, it’s not surprising that VA loan closing costs also diverge from other loan types.
Most lenders charge a mortgage origination fee for the costs of underwriting and processing the mortgage.
However, the rules of VA loans place a limit on the fees a lender can charge you. Borrowers who use VA loans can only be charged a maximum of 1% of the total loan amount for an origination fee.
In general, origination fees will range from 0.5% to 1% of the total loan amount. This amount is roughly the same as most borrowers pay for most other mortgage loans.
VA Funding Fee
This fee is a unique cost when it comes to most mortgages, but similar to a USDA Guarantee Fee.
The VA Funding fee is a single-time fee paid to the Department of Veterans Affairs that helps fund the VA loan program for future applicants.
How much the funding fee costs will depend on:
- The type of home loan you’re getting
- Whether this is a purchase or a refinance (through an IRRRL)
- How many times you’ve used the VA loan program
- How much of a down payment you’re including
Pro Tip: The VA Funding Fee is calculated as a percentage of the loan amount. The larger the down payment you can offer, the smaller the funding fee will be.
For example, let’s say a first-time homebuyer is using the VA loan program but is offering less than 5% down—they would be paying a funding fee of 2.3%. However, if they were to offer 10% or more for a down payment, they would have a finding fee of only 1.4%.
VA Appraisal Fee
Appraisal fees are quite common for many types of mortgage loans. However, the VA loan program has a specialized VA Appraisal fee.
A VA Appraisal fee costs a borrower somewhere between $425 to $875, and it should be included with any other closing costs.
Most types of mortgages, including VA loans, offer mortgage discount points. Sometimes simply called “points,” a discount point is prepaid interest on the home loan.
A single point is equivalent to a single percentage of the loan amount—one point costs 1%. Borrowers use this as a way to lower their interest rates. Usually, one discount point will lower your interest rate by 0.25%.
Remember that this plan involves paying for the interest in advance—and payment will typically be due at closing.
Will I pay fewer closing costs with a VA loan?
There are some closing costs and fees that a lender cannot require borrowers to pay when they choose a VA loan. These costs are known as “nonallowable fees.”
Some of these fees include settlement charges, prepayment penalties, and attorney fees from the lender. These fees are normally included with other home loan types, including conventional loans.
Other VA mortgage closing costs
Other VA mortgage fees that might be included in your home loan include:
- Real estate taxes
- State and local taxes
- Credit report fees
- Hazard insurance
- Title insurance
- Recording fees
Can I avoid paying VA closing costs out of pocket?
There are certain situations where you don’t have to pay the funding fee.
- If you are receiving/eligible to receive VA compensation for a service-related disability.
- If a veteran passed away in service or due to a disability that was service-related, their surviving spouse might not have to pay.
- If the applicant received a purple heart
If you’re unsure if you qualify for one of the VA funding fee waivers, talk to your VA-approved lender, who will inquire with the VA directly.
Finally, most costs can be rolled into the loan itself, including the VA funding fee. It’s not possible, however, to roll the down payment into the loan because it will unfairly reduce the funding fee.
VA home loan closing costs—the bottom line
Closing costs are merely one of the many details to keep track of when purchasing a home through the VA loan program.
Homefinity has decades of combined experience dealing with VA loans.
From the first steps of getting your Certificate of Eligibility to crossing the goal line and getting the keys to your new home, we have the knowledge and passion for helping.
You can look at what it might cost you to buy a home through our affordability calculator.
Reach out to our loan officers, who can give you a much more detailed picture of VA home loans and whether they are the right loan product for you.
A down payment is required if the borrower does not have full VA entitlement or when the loan amount exceeds the VA county limits. VA loans subject to individual VA Entitlement amounts and eligibility, qualifying factors such as income and credit guidelines, and property limits. Homefinity is not affiliated with any government agencies.
Photo by Brett Sayles