If you’re an active-duty service member or veteran, a VA loan could help you finance a home with no down payment and a lower credit score. This kind of loan comes with closing costs like other mortgages, which can either be paid upfront or as part of the loan itself. Here is what you can expect to pay for a VA loan.
What are VA loan closing costs?
VA loan closing costs are all the fees associated with originating a VA loan. These can include:
- Origination fee – The U.S. Department of Veterans Affairs (VA) limits this fee to 1 percent of the total loan amount.
- Funding fee – Most VA loans come with a one-time funding fee, paid by the borrower. This cost 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, and ranges from 1.4 percent to 3.6 percent of your loan. You can finance this fee with your loan or pay it at closing.
- Discount points – Borrowers can can opt to purchase points to lower thee interest rate on the loan. “Essentially, this is an added upfront cost paid at closing, which allows them to secure a rate lower than the par rate,” explains Angie Sanders, associate director of production at Veterans United Home Loans.
Other VA loan closing costs could include:
- Credit check fee
- Title search and title insurance costs
- Hazard insurance
- Real estate taxes
- Recording fee
The VA prohibits VA loan borrowers from being assessed certain types of fees, Sanders says, including:
- Application fee
- Appraisal fee if ordered by the lender
- Home inspection fee if ordered by the lender
- Document preparation fee
- Attorney fee
- Mortgage rate lock fee
- Postage fee
- Escrow fee
How much are VA closing costs?
VA closing costs can range from 3 percent to 5 percent of your loan, but the final tally ultimately depends on the 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 three days before your closing date.
“VA closing costs are very competitive overall, but closing costs vary from lender to lender,” says Kevin Parker, vice president of field mortgage originations at Navy Federal Credit Union. “Borrowers may choose to compare a VA loan to a conventional loan to evaluate the differences.”
Can you roll in closing costs on a VA loan?
The VA funding fee is the only fee or charge that can be rolled into a purchase loan amount. Think carefully about whether it makes financial sense over the long run to take advantage of this option.
“The drawback is that you are financing and paying interest on your closing costs, so while it helps with lowering out-of-pocket costs, you end up paying interest on those costs during the life of the loan,” Sanders says.
Can sellers pay VA loan closing costs?
The home seller can agree to pay a portion of the buyer’s closing costs, including the funding fee or origination fee, for instance. Note that for a VA loan, sellers are always required to pay for the real estate agent commissions, any brokerage fees and a termite report.
“In any sale, most of the closing costs can be negotiated by the buyer and seller,” Parker says. “The same is true for VA loans, but the VA mandates that seller concessions can’t exceed 4 percent of the total loan value.”
How to limit out-of-pocket costs
Besides negotiating with the seller to pay for some of the closing costs, you can cut your expenses by avoiding points, which reduce your interest rate but cost money upfront.
In addition, there are some special circumstances in which a borrower can be exempt from the funding fee. These include if the borrower is:
- Living with a disability connected to their service and being compensated for the disability
- Living with a disability connected to their 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 mortgage lender if it has any discounts or rebates — some might even waive certain costs if you ask. If possible, try to close your mortgage towards the end of the month, as well. This reduces the amount of per-diem interest you’ll have to pay.
There might also be some closing cost and down payment assistance programs available at the state level specifically for veterans. Some cities and counties offer programs of their own, as well. Ask your lender about availability.