When you’re buying a home, be prepared to juggle a variety of numbers. There’s the asking price, your offer, and the purchase price. There’s also the down payment that you’ll need to come up with and the interest rate for your new home loan. With so many figures flying around, it’s easy to overlook something, but smart buyers know to keep an eye out for information regarding their closing costs. After all, every buyer needs to know how much money they’ll need to bring to the table to seal the deal. However, the U.S. Department of Veterans Affairs (VA) takes an unusual approach to closing costs, so borrowers using a loan from its home loan program will want to take note. How do closing costs for VA loans work?
What You Need to Know About Closing Costs for VA Loans
Closing costs are part of the loan process, but closing costs for VA loans are a little different. Understanding what closing costs are, how the VA loan program handles them, and what this means for you can help you move forward with your home purchase with confidence.
Closing Cost Basics
As Investopedia explains, closing costs are fees paid to third parties like your lender, real estate attorneys, inspectors, and other professionals for various services needed to complete the legal transfer of the ownership of a property. By law, these costs must be disclosed in advance and accepted by both the buyer and the seller. Traditionally, both the buyer and the seller are responsible for certain costs, but nothing is set in stone. Negotiations are possible.
Closing costs commonly include a variety of fees like the following:
- Application fee
- Appraisal fee
- Attorney fee
- Courier fee
- Credit report fee
- Escrow deposit
- Escrow fee
- Homeowner’s insurance
- Lender’s title insurance
- Lead-based paint inspection fee
- Points
- Owner’s title insurance
- Origination fee
- Pest inspection fee
- Prepaid daily interest charges
- Private mortgage insurance premium
- Property taxes
- Rate lock fee
- Real estate commissions
- Recording fee
- Survey fee
- Title search fees
- Underwriting fees
Please note that at PrimeLending, we never charge lender fees to veterans, as our way of saying thank you. The only fees we charge are pass-through fees paid to someone else on the veteran’s behalf.
VA Loans and Closing Costs
Borrowers using a VA loan are only allowed to pay certain closing costs. Military.com offers an acronym (ACTORS) to help borrowers remember what they are allowed to pay for:
- A: Appraisal
- C: Credit report
- T: Title insurance
- O: Origination fee
- R: Recording fee
- S: Survey fee
The Other Closing Costs
Who pays for the closing costs that the VA borrower isn’t allowed to cover? The origination fee can stretch to cover many things, but there’s still a chance that at least some closing costs will be deemed out of bounds for the buyer. As NerdWallet indicates, the seller may agree to take on some of these costs. When they make their purchase offer, buyers who plan to use a VA loan can include a clause stating that the seller must agree to pay a portion of the closing costs. Alternately, a lender may allow borrowers to purchase lender credits to offset closing costs. Buyers considering this option should be aware that it may raise their interest rates.
The VA Funding Fee
There’s one other fee that’s brought to the closing table that’s unique to VA loans: the VA funding fee. This one-time charge helps fund the VA loan program and is either due at closing or rolled into the loan. How much is the VA funding fee? As the VA explains, that depends on several factors, including the type of loan, the loan amount, and the size of the down payment. While down payments may not be required for a VA loan, making one can reduce your VA funding fee. How often you’ve used the VA loan program also affects your funding fee. Novice users will pay a smaller funding fee than repeat borrowers. It’s also worth noting that the funding fee may be waived under certain circumstances.
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At PrimeLending Denver, our most important mission is helping you achieve your housing goals. We have a deep understanding of what makes the VA home loan program tick, so we know how to help you get the most out of the housing benefits that you’ve earned with your service. Let us help you get started on your journey to homeownership. Contact us today.