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. However, that doesn’t mean that you won’t have to pay any upfront expenses. VA loans have closing costs. Read on to learn how VA loan closing costs work, their terms and their unique features, including the way they differ from those carried by other mortgages.

What are VA loan closing costs?

VA loan closing costs are all the fees associated with originating a VA loan. These generally include:

  • Origination fee – The charge for creating the loan. The U.S. Department of Veterans Affairs (VA) limits this fee to 1 percent of the total loan amount.
  • Funding fee – This one-time charge, which is on most VA loans, is based on the type of VA loan (for example, purchase or refinance), the total amount being borrowed, your down payment and whether you’ve previously had a VA loan. The funding fee for purchase loans ranges from 1.25 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 the interest rate on their VA loan. 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
  • Title search and title insurance costs
  • Hazard insurance
  • Recording fee
  • Flood certification fee
  • Survey fee
  • 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, but the final tally ultimately depends on the VA lender you choose to work with. With conventional loans, total closing costs will typically equate to 2 percent to 5 percent of your loan amount.

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 insights

Bankrate’s VA loan closing costs calculator can help you get a sense of how much you’ll pay in closing costs.

How are VA closing costs different from other mortgage 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.

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. These fees include attorney fees and prepayment penalties.

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, you cannot be charged 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
  • 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. With VA loans, though, there’s no need to worry about any mortgage insurance premiums at closing.

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 in full out-of-pocket 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. Note that for a VA loan, sellers are always required to pay for 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, you’ll be paying interest on this closing cost. So while it helps with lowering upfront expenses, you end up paying more during the life of the loan.

How to reduce your closing costs

Besides negotiating with the seller to pay for some of the closing costs, you can cut your VA closing costs by avoiding the purchase of discount points; these can reduce your interest rate but must be paid upfront at closing.

In addition, there are some special circumstances in which a borrower is exempt from the funding fee, which reduces overall closing costs. These include if you are:

  • Living with a disability connected to your service and being compensated for the disability
  • Living with a disability connected to your service and receiving military retirement pay (instead of compensation)
  • An active-duty Purple Heart recipient
  • A surviving spouse whose partner died in service (and is being compensated) or from a service-related disability
  • Eligible to be compensated due to a pre-discharge

You can also try to snag more savings by asking your VA mortgage lender if it offers any discounts or rebates. Some might even waive certain costs if you ask. If possible, try to close your mortgage toward the end of the month, as well. This reduces the amount of per-diem interest you’ll have to pay.

Additionally, some closing cost and down payment assistance programs might be available at the state level — some specifically for veterans. Certain cities and counties offer programs of their own, as well. You can ask your lender about the availability of these programs or contact your state’s housing authority.

Bottom line on VA closing costs

If you qualify for a VA loan, you’re in line for one of the most affordable pathways to home ownership, thanks to the no down payment requirement and lower interest rates compared to conventional mortgages. However, you’ll still need to pay VA loan closing costs. Make sure you compare the best VA lenders to find an option that offers low fees and exceptional service to make your homebuying experience as smooth and as affordable as possible.