All mortgage loans have closing costs; it’s a part of doing business with a lender. VA loans have limits regarding what buyers pay, though. The VA protects buyers and I also ensure my clients pay the lowest closing fees possible to make the most of your VA home buying experience.
The VA allows sellers to cover all the buyer’s closing costs related to the loan. This includes all allowable and not-allowed closing costs for the loan.
Sellers may also pay up to 4 percent in ‘other fees’, known as seller concessions. This covers expenses, such as prepaid interest, property taxes, and homeowner’s insurance that you would otherwise owe at the closing.
If you don’t have the cash for closing costs or if you wish to have the seller cover your closing costs, negotiate it with the seller before executing the contract as it will affect the home’s total sales price and your bottom line.
Here’s a closer look at the VA closing costs.
Veterans, sellers, or a combination of the two may pay the following VA loan closing costs. Veterans cannot include these costs in the loan amount, though; you must pay them at the closing:
The VA allows veterans to pay reasonable and customary fees for the above costs, plus a 1 percent lender origination fee. Lenders must use 1 percent fee to lump any non-allowed closing costs into it rather than charging them to the borrower as itemized costs.
Veterans may also pay reasonable discount points for the market at the time of purchase to lower the interest rate. For example, you may pay 1 point to lower your interest rate by 0.25 percent.
Besides the itemized costs above, the VA allows the following closing costs:
Veterans may pay all prepaid items which include:
All VA loans include a funding fee, except in certain situations. The amount paid depends on your down payment. First-time homebuyers with no down payment pay 2.3 percent of the loan amount. Veterans borrowing for the second time pay a 3.6 percent fee.
Veterans that put down 5 percent to 9.99 percent of the purchase price pay 1.65 percent of the loan amount fee and veterans putting down 10 percent or more pay 1.4 percent of the loan amount.
Veterans may include the funding fee in the loan amount or pay it at the closing.
Certain veterans are exempt from the fee, including:
The VA protects veterans by not allowing certain fees. For example, veterans can’t pay fees to close the loan, prepare documents, rate lock fees, postage fees, escrow fees, notary fees, trustee fees, tax service fees, or attorney fees for title preparation.
Lenders must include these fees (if applicable) in the 1 percent of the loan amount charge.
Veterans have two options to pay the closing costs – pay them out of pocket or ask the seller to cover them. It’s important to discuss your options with your seller if you want help with the closing costs. Willing sellers provide a credit at the closing. In reality, they help you increase your loan amount. Your loan amount will be the lesser of the purchase price or appraised value. Your purchase price should include the cost of the closing costs or the amount the seller’s willing to contribute. This ensures your loan amount will be enough to cover the closing costs too (as long as the home is worth at least the same amount).
I have extensive experience helping veterans determine the right option that suits their pocketbook now while ensuring they make a sound financial decision for the future.Purchase Qualifier Refinance Rate Checker