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VA home loan closing costs: How do they work?
Closing costs are fees charged by a mortgage lender to process and issue a mortgage loan. All mortgage loans have closing costs that are paid by the homebuyer. Like regular closing costs, VA mortgage closing costs include a variety of different fees, however, there are some important differences. Typically, the closing costs associated with a VA loan are lower than closing costs on a conventional mortgage loan.
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What are VA loan closing costs?
VA mortgage loans are insured by the U.S. Department of Veterans Affairs and are available to qualifying U.S. Armed Forces Veterans, Active Duty Service Members, certain reservists, and National Guard members, and certain surviving spouses of deceased veterans.
Unlike conventional mortgage loans that have many closing costs, which can be quite expensive, VA mortgage closing costs are less expensive due to certain fees being “not allowable” according to VA mortgage rules.
However, all VA mortgage loans include a one-time funding fee. The VA funding fee is a one-time payment that the veteran, service member, or survivor pays on a VA-backed or VA direct home loan. This fee helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn’t require down payments or monthly mortgage insurance.
VA regulations limit VA home loan closing costs. Lenders must strictly adhere to the limitations on borrower-paid fees and charges when making VA loans.
No matter what type of mortgage loan you get, there are always closing costs on a house.
How VA loan closing costs are different
This is an overview of the fees that lenders can and cannot charge as part of VA home loan closing costs.
The veteran can pay a maximum of:
- Reasonable and customary amounts for any or all of the “Itemized Fees and
Charges” designated by VA. - A one percent flat charge by the lender.
- Reasonable discount points.
Non-allowable fees. These are fees the VA has stated are not allowed to be charged to VA mortgage loan recipients at closing.
Application fee. This is a non-allowable fee.
Home inspection. A home inspection is not required by the VA, and the homebuyer may choose to pay for an inspection prior to deciding to go through with a home purchase.
VA appraisal fee. The veteran can pay the fee of a VA appraiser and VA
compliance inspectors.
- The veteran can also pay for a second appraisal if he or she is requesting reconsideration of value.
- The veteran cannot pay for an appraisal requested by the lender or seller for reconsideration of value. The veteran cannot pay for appraisals requested by parties other than the veteran or lender.
Attorney's fees. The lender may not charge the borrower for attorney’s fees. However, reasonable fees for title examination work and title insurance can be paid by the borrower. They are allowable itemized fees and charges. VA does not intend to prevent the veteran from seeking independent legal representation. Therefore, the veteran can independently retain an attorney and pay a fee for legal services in connection with the purchase of a home.
Mortgage rate lock fee. The lender cannot charge the veteran this fee as an “itemized fee and charge.” Instead, the lender must cover any cost of the rate lock fee in its flat fee.
Postage fee. Postage and other mailing charges, stationery, telephone calls, and other overhead fees are non-allowable.
Escrow fee. This is a non-allowable fee.
Limiting origination fee. Origination fees cover the lender’s basic costs for starting the mortgage approval process. The lender may charge a flat fee of 1% of the loan amount.
VA funding fee. Unless exempt, each veteran must pay a funding fee to VA.
Discount points. The buyer may choose to pay discount points to reduce the loan’s interest rate.
How much are VA loan closing costs?
The VA doesn’t determine VA home loan closing costs. Closing costs and the mortgage interest rate on a VA loan are determined by the lender. The lender may charge a flat charge not to exceed one percent of the loan amount.
Typical closing cost items include, but are not limited to:|
- Property appraisal
- Credit report fee
- Property survey
- Discount points
- Recording fees paid to the county or state where the deed is recorded
- Title insurance to insure the property is free of liens
Who pays closing costs on a VA loan?
The buyer will be responsible for paying the closing costs charged by whichever mortgage lender they choose. The seller may decide whether or not to pay some of the buyer’s closing costs. This typically happens in cases where the seller is eager to make the deal go through.
Can sellers pay VA home loan closing costs?
In some cases, a home seller may choose to pay a borrower's VA home loan closing costs. Sellers can’t pay more than 4% of the total home loan in seller’s concessions. This rule only covers some closing costs, including the VA funding fee. The rule doesn’t cover loan discount points.
Can you roll closing costs into your VA loan?
Some VA home loan closing costs may be rolled into your mortgage loan, while other fees must be paid at closing. You are allowed to include the funding fee in your loan and pay it off over time.
How to reduce your VA loan closing costs
Here are some ways you can reduce your VA home loan closing costs:
- VA funding fee exemption. Some veterans and qualifying surviving spouses may qualify for a Funding Fee Exemption.
- Make a down payment. The more money you put down on the home purchase the less your funding fee and other costs will be. For example, lenders may charge a flat charge not to exceed 1% of the loan amount. The more you can reduce your loan amount the less you’ll pay in closing costs.
- Negotiate closing costs. Lenders may waive or reduce some closing costs. Don’t be afraid to ask for reduced fees.
- Purchase discount points. Different point amounts will have a different costs. Ask your lender if there is fee flexibility.
Why savvy consumers choose CU SoCal
For over 60 years CU SoCal has been providing financial services, including car loans, mortgages, Home Equity Loans, HELOCs, personal loans, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation loan consultation with a CU SoCal Member Services specialist.
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