VA home loans, which are offered by the Department of Veterans Affairs (VA), provide a range of benefits for eligible veterans, active-duty service members, and certain surviving spouses. One common question that often arises is whether VA home loans come with closing costs. In this article, we’ll delve into the details of closing costs associated with VA home loans and help you understand what to expect.
The Basics of VA Home Loans
Before we discuss closing costs, let’s briefly touch upon the basics of VA home loans. These loans are designed to make homeownership more accessible for veterans and military personnel. VA loans offer competitive interest rates, flexible qualification requirements, and the ability to purchase a home with little to no money down.
Unlike conventional loans, VA loans don’t require private mortgage insurance (PMI), which can save borrowers significant money over time. Additionally, the VA provides backing to lenders, reducing their risk and helping eligible borrowers secure favorable loan terms.
Closing Costs Overview
Closing costs are fees and expenses associated with finalizing a mortgage loan. They typically include charges for services performed by various parties involved in the home buying process, such as the lender, appraiser, title company, and government agencies.
While closing costs are a common aspect of most mortgage loans, the VA restricts the types of costs that veterans can pay. This is meant to protect VA loan borrowers from excessive financial burdens.
VA loan closing costs fall into two categories: those that veterans are not allowed to pay and those that veterans can pay under particular circumstances.
Closing Costs Veterans Cannot Pay
As mentioned earlier, there are specific closing costs that veterans are not allowed to pay. These include:
- Loan origination fee exceeding 1% of the loan amount
- Brokerage fees
- Real estate agent commissions (unless negotiated with the seller)
- Underwriting fees
- Fees for loan application or processing
It’s important to note that while veterans cannot pay these costs directly, they might still need to be paid. In such cases, the seller or another third party can cover these expenses.
Closing Costs Veterans Can Pay
While VA borrowers have restrictions on certain closing costs, they are permitted to pay for other fees. Here are some closing costs that veterans can be responsible for:
- VA appraisal fee
- Credit report fee
- Recording fee for the deed of trust
- Surveyor’s fee
- Recording fees for the release of any liens
These costs can vary depending on the location, lender, and other factors. It’s important to review the Loan Estimate, which provides an itemized list of the estimated closing costs associated with a VA home loan.
Understanding the Funding Fee
In addition to closing costs, VA loan borrowers are required to pay a funding fee. This fee goes directly to the VA and helps offset the costs of the loan program. The amount of the funding fee depends on factors such as the borrower’s military category, down payment amount, and whether it’s the borrower’s first VA loan or subsequent use.
It’s worth noting that the funding fee is typically rolled into the loan amount, so borrowers don’t need to pay it upfront. However, it’s important to factor in the funding fee when considering the overall costs of a VA loan.
Conclusion
While VA home loans offer numerous benefits, including the ability to purchase a home with no down payment and competitive interest rates, they do come with certain closing costs. However, VA loan borrowers are protected from paying many of the common closing costs associated with traditional mortgages. By understanding what costs are allowed and the potential fees involved, veterans can make informed decisions and take advantage of the benefits provided by VA home loans.