What to Know About VA Loan Closing Costs

Typical VA Loan Closing Costs

Here’s a list of common VA loan closing costs:

Appraisal Fees

An appraisal is required to determine the fair market value of the home. Appraisal fees generally range from $300 to $500.

Origination Fees

Lenders charge origination fees to cover the costs of processing, underwriting, and funding the loan. The VA limits this fee to 1% of the loan amount.

Title Fees

Title fees include the cost of title search, title insurance, and recording fees. These ensure that the property is free of liens and that the title is transferred correctly.

Escrow Fees

Escrow fees cover the cost of hiring a neutral third party to manage the transfer of funds and documents between the buyer and seller. These fees vary based on the loan amount and location.

Prepaid Expenses

Prepaid expenses include property taxes, homeowners insurance, and interest accrued between the closing date and the first mortgage payment. These costs depend on the property’s value and location.

Seller Concessions and VA Loan Closing Costs

The VA allows sellers to pay up to 4% of the loan amount toward the buyer’s closing costs and prepaid expenses. Known as seller concessions, these contributions can significantly reduce the out-of-pocket expenses for VA loan borrowers. Here are some common seller concessions:

• Paying for the VA funding fee
• Covering a portion of property taxes and insurance
• Paying for discount points to lower the interest rate

Negotiating VA Loan Closing Costs

Negotiating with the seller or lender to cover some or all of the closing costs can help minimize your upfront expenses. Consider these strategies:

1. Request the seller to pay closing costs: While drafting the purchase agreement, ask the seller to cover a portion or all of the closing costs.
2. Ask for a lender credit: Request your lender to cover some of the closing costs in exchange for a slightly higher interest rate on your loan.
3. Buy discount points: You can pay for discount points upfront to lower your interest rate, potentially saving money in the long run.

How to Estimate Your VA Loan Closing Costs

Estimating your VA loan closing costs involves considering factors such as the loan amount, property location, and individual lender fees. To get an accurate estimate:

1. Obtain a Loan Estimate: Request a Loan Estimate from your lender within three days of submitting your loan application. This document provides a detailed breakdown of the closing costs.
2. Research local property tax and insurance rates: Research property tax rates and homeowners insurance premiums in the area where you’re buying a home.
3. Consult with a real estate agent: A knowledgeable real estate agent can help you estimate closing costs based on their experience in the local market.

VA Loan Closing Costs Assistance Programs

Several assistance programs are available to help VA loan borrowers cover their closing costs. These programs include:

1. State-specific housing programs: Many states offer housing assistance programs for veterans and active-duty service members, which may provide grants or loans for closing costs.
2. Non-profit organizations: Some non-profit organizations, like the PenFed Foundation and the Veterans Association of Real Estate Professionals, offer financial assistance to eligible veterans and service members for closing costs.
3. Local government programs: Check with your local government for any housing assistance programs that may help with closing costs.

Conclusion

Understanding VA loan closing costs is essential for a smooth home-buying experience. By familiarizing yourself with the various fees, negotiating with the seller and lender, and exploring assistance programs, you can minimize your out-of-pocket expenses and secure your dream home.

Our Most Commonly Asked Questions

Can a VA loan cover closing costs?
While VA loans themselves do not directly cover closing costs, they allow for various options that can help reduce out-of-pocket expenses. For instance, the VA permits sellers to pay up to 4% of the loan amount toward the buyer’s closing costs and prepaid expenses. Additionally, borrowers can negotiate with lenders for lender credits or explore financial assistance programs to help cover closing costs.

What are VA loan closing costs?
Closing costs are the fees and expenses paid by both the buyer and the seller during the final stages of a home purchase. For VA loans, closing costs typically range from 3% to 5% of the loan amount. Common closing costs associated with VA loans include:

• Appraisal fees
• Origination fees
• Title fees
• Escrow fees
• Prepaid expenses

Will a VA loan cover closing costs?

A VA loan does not directly cover closing costs; however, it provides flexible options for reducing out-of-pocket expenses. Buyers can negotiate with sellers to cover a portion or all of the closing costs, request lender credits in exchange for a slightly higher interest rate, or explore closing cost assistance programs for veterans and service members.

Will a VA loan pay closing costs?

While a VA loan itself does not pay closing costs, it allows borrowers to explore various avenues to reduce or cover these expenses. Seller concessions, lender credits, and assistance programs are all options that can help VA loan borrowers minimize their upfront expenses.

How long does it take to close a VA loan?

The time it takes to close a VA loan depends on various factors, including the borrower’s eligibility, property type, and underwriting process. On average, VA loans can take between 30 to 45 days to close. However, this timeframe may vary depending on the specific circumstances of the home-buying process.