VA closing costs: What are they and how much are they?
Key takeaways
- VA loans come with closing costs, which include the origination fee, funding fee, discount points and other fees for your home loan.
- VA closing costs can range from 1 to 6 percent of your loan, but the seller may pay up to 4 percent for you.
- You can roll the VA funding fee into your loan principal to avoid paying it upfront, but this move will cost you more in interest over the loan term.
If you’re an active-duty service member, veteran or surviving spouse, a VA loan could help you finance a home with no down payment. But that doesn’t mean you’re spared any cash contribution to the deal — VA loans do carry some upfront expenses. Here’s what you need to know about VA loan closing costs.
Do VA loans have closing costs?
VA loan closing costs include all the fees associated with originating a loan that’s insured by the U.S. Department of Veterans Affairs (VA). These generally include:
- Origination fee – This charge is for creating the loan. The VA limits this fee to 1 percent of the total loan amount.
- Funding fee – This one-time charge is based on the type of VA loan (for example, purchase or refinance), the total amount being borrowed, your down payment amount (should you choose to make one) and whether you’ve previously had a VA loan. The funding fee for purchase loans ranges from 0.5 percent to 3.3 percent. You can roll this fee into your loan or pay it out-of-pocket at closing.
- Discount points – Borrowers can opt to purchase points to lower their VA loan interest rate. This is an added upfront cost paid at closing, which allows you to secure a rate lower than the par rate.
Other closing costs on a VA loan could include:
- Credit check fee
- Appraisal fee
- Title search and title insurance costs
- Hazard insurance: Coverage on your home in case something happens to damage your home’s structure, such as wind, theft or a fire.
- Recording fee: This covers the cost of legally registering, or recording, your home purchase to the local or state government agency.
- Flood certification fee: The mortgage lender uses a flood certification to determine whether your home is in a flood zone. This lets them know if your house requires flood insurance or not.
- Survey fee: A mortgage survey determines the boundaries of your property.
- Prepaid items (property taxes, homeowners insurance premium)
- State and local taxes
How much are VA closing costs?
VA loan closing costs can range from 1 percent to 6 percent of your loan. However, the final tally ultimately depends on the VA lender you choose to work with.
By law, your VA lender is required to provide an estimate of all the closing costs associated with your loan within three days of applying for it, as well as a finalized list of the closing costs, known as the closing statement, at least three days before your closing date.
Bankrate’s VA loan closing costs calculator can help you get a sense of how much you’ll pay in closing costs.
VA closing costs vs. other loans
If you’re comparing VA loans with other options, like conventional loans and FHA loans, it’s important to understand some of the key differences. These include:
- There are certain fees that VA borrowers will never pay – If you take out a VA loan, lenders cannot charge you for certain fees that may show up on other mortgage types, called non-allowable fees. These fees ensure that service members and veterans can still afford to buy a home without paying extra overhead costs. Attorney fees and prepayment penalties are two examples.
- Your origination fee will never exceed 1 percent of the loan amount – The VA mandates that lenders limit origination fees to no more than 1 percent of the loan amount. And if your lender does charge that flat 1 percent origination fee, it cannot charge you separately for any of the following items: application fees, document preparation fees, notary fees, attorney’s fees, mortgage rate lock fees, postage fees, escrow fees, loan closing or settlement fees, lender-ordered appraisal or inspection fees and photographs.
- There is no mortgage insurance on VA loans – Mortgage insurance tacks on a significant upfront cost for borrowers with FHA loans — 1.75 percent of the loan amount. Conventional loans also carry them, if your down payment is under 20 percent. VA loans don’t have this charge.
- Sellers are limited to paying 4 percent of the sales price – With FHA loans, sellers can contribute up to 6 percent of the price with concessions. The VA caps these concessions at 4 percent. However, it’s important to note that discount points are not included in the 4 percent maximum.
How to pay closing costs on a VA loan
The different ways you can pay for your VA loan closing costs include:
- Pay the closing costs out-of-pocket and in full at closing.
- Ask the home seller to pay for the closing costs. The seller can agree to pay a portion of the buyer’s closing costs, up to 4 percent of the mortgage, including the funding fee or origination fee. For a VA loan, sellers are always required to pay the real estate agent commissions, brokerage fees and termite reports. As with any home sale, the buyer and the seller can negotiate most of the other closing costs.
- Roll the costs into your loan. This is only allowed for the funding fee (other closing costs usually can’t be rolled into your VA purchase loan). Think carefully about whether this move makes financial sense over the long run: Since it’s added to your loan principal, it’ll accrue interest on it. So while it lowers your upfront outlay, you end up paying more in interest during the life of the loan.
VA loan closing cost FAQ
