VA Loan Closing Costs: What You Need to Know

VA Loan Closing Costs: What You Need to Know

For many military families, the VA loan is an attractive option for purchasing a home. Not only does it offer the benefit of no down payment and no private mortgage insurance (PMI), but it also provides competitive interest rates. However, while the VA loan can make homeownership more accessible, there are still closing costs that need to be considered before finalizing your purchase.

Understanding these costs upfront can help you budget appropriately and avoid any surprises at the closing table. Here’s everything you need to know about VA loan closing costs and how to prepare.

1. What Are Closing Costs?

Closing costs are fees that buyers must pay when finalizing the sale of a home. They are separate from your down payment (which isn’t required for VA loans) and are due at closing, typically paid out of pocket or through financing options. These costs can vary based on the price of the home, location, and the specific terms of your loan.

2. Common VA Loan Closing Costs

Although the VA limits some fees, there are still a few costs you should expect to pay. Here’s a breakdown of common VA loan closing costs:

A. VA Funding Fee

One of the most unique closing costs associated with a VA loan is the VA funding fee. This is a one-time fee that helps fund the VA loan program. The amount of the funding fee varies depending on factors such as whether it’s your first or subsequent use of the VA loan, the size of your down payment (if any), and whether you are active duty or a veteran.

• First-time VA loan users: 2.15% of the loan amount if you make no down payment.
• Subsequent use: 3.3% of the loan amount for those who have used a VA loan before.
• If you make a down payment: The funding fee may be reduced to 1.5% if you put at least 5% down, or 1.25% if you put 10% down.

This fee can be rolled into your loan amount, so you don’t have to pay it out of pocket at closing, but it will affect your loan balance and monthly payments.

B. Origination Fee

An origination fee is charged by the lender for processing the loan. VA loans typically allow a 1% origination fee but may also include other fees for underwriting, processing, and documentation. The good news is that the VA limits what lenders can charge for origination fees, protecting you from inflated charges.

C. Appraisal Fee

Before your loan is approved, the VA requires a home appraisal to ensure the home is worth the purchase price and meets minimum property requirements. The cost of this appraisal typically ranges from $400 to $700, depending on the location of the property and the complexity of the appraisal.

D. Title Insurance and Title Search

Title insurance protects the lender in case there are any issues with the home’s title, such as disputes over ownership. You may also be required to pay for a title search to verify the property’s ownership history. These costs generally range from $500 to $1,500, depending on the property’s value and location.

E. Survey Fee

Some lenders require a property survey to confirm the boundaries of the land you’re purchasing. While this fee is not always necessary, it can range from $300 to $500 if required.

F. Closing Agent Fees

A closing agent, whether an attorney or a title company representative, will facilitate the closing process. The agent’s fee can vary by location, but you can expect to pay anywhere from $300 to $1,000.

G. Prepaid Costs

Prepaid costs include expenses that you’ll need to pay in advance, such as homeowner’s insurance premiums, property taxes, and interest. These are typically set up in escrow accounts to be paid by the lender on your behalf.

• Homeowner’s Insurance: You’ll need to pay for the first year of homeowner’s insurance upfront, which can range from $500 to $1,500 depending on your policy.
• Property Taxes: Some lenders require you to pay for property taxes in advance, which can vary widely by location.
• Interest: Depending on the timing of your closing, you may need to prepay a portion of your interest on the mortgage.

3. How Much Are VA Loan Closing Costs?

The total cost of closing with a VA loan typically ranges between 3% to 5% of the loan amount. This means that for a $250,000 home, closing costs might be anywhere from $7,500 to $12,500. However, the VA loan program offers ways to reduce your out-of-pocket expenses:

• Seller Contributions: The seller can contribute up to 4% of the sale price to cover closing costs, including the VA funding fee. Negotiating seller concessions is a smart way to minimize your financial burden at closing.
• Lender Credits: Some lenders may offer “lender credits” to cover part of your closing costs in exchange for a higher interest rate. Be sure to discuss this option with your lender if you want to reduce your upfront expenses.

4. Can You Finance Closing Costs?

Yes! The VA allows you to roll some or all of your closing costs into the loan, including the VA funding fee. This means you won’t need to pay all of the closing costs upfront, but keep in mind that doing so will increase your loan amount and monthly payments.

5. How to Prepare for VA Loan Closing Costs

The best way to manage closing costs is to plan ahead. Here are a few tips for preparing:

• Get a Loan Estimate: Within three days of applying for a VA loan, your lender will provide a Loan Estimate that outlines all closing costs and fees.
• Budget Early: Knowing what to expect in terms of closing costs will help you budget and avoid any surprises.
• Shop Around: Compare loan estimates from multiple lenders to find the best rate and terms. Lenders may charge different fees, and it’s important to understand what’s included in each estimate.

6. Final Thoughts

While VA loans offer many benefits, including no down payment and no PMI, they still come with closing costs that need to be considered. By understanding the different fees involved and planning ahead, you can ensure a smoother closing process and avoid any last-minute stress.

Contact Realtor Daniel Salazar

If you’re ready to buy a home and want to make the most of your VA loan benefits, I’m here to help! As a real estate expert with experience working with military families, I can guide you through the entire process, from understanding closing costs to finding your dream home.

Realtor: Daniel Salazar
Company: REAL Broker LLC
Phone: 210-701-3880
Email: dansalre11@gmail.com

Let’s work together to make your home buying experience seamless and stress-free!