When it comes to buying a home using a VA loan, one common question that arises is who pays the closing costs? Closing costs are fees and expenses associated with the purchase of a home, including lender fees, appraisal fees, title insurance, and more. In the case of a VA home loan, the answer to who pays the closing costs can vary depending on the negotiations between the buyer and the seller.
1. Seller-Paid Closing Costs
One option for financing the closing costs on a VA home loan is having the seller pay for them. The seller can agree to pay a portion or even all of the closing costs on behalf of the buyer. This arrangement is commonly known as a seller concession. It can be a great benefit for the homebuyer, as it helps reduce the upfront expenses associated with buying a home.
Here are some key points to know about seller-paid closing costs:
- The seller can contribute up to 4% of the total loan amount towards the buyer’s closing costs.
- These costs can include prepaid property taxes, homeowner’s insurance, and even the funding fee charged by the VA.
2. Buyer-Paid Closing Costs
If the seller is unwilling or unable to cover the closing costs, the buyer is responsible for paying them. This is a common scenario in a competitive real estate market where sellers may receive multiple offers and have the upper hand in negotiations. In such cases, the buyer needs to ensure they have enough funds to cover the closing costs in addition to the down payment.
Buyer-paid closing costs can include:
- VA appraisal fees
- Loan origination fees
- Title insurance
- Home inspection fees
- Property taxes and homeowner’s insurance
3. Split Closing Costs
In some cases, both the buyer and the seller may agree to split the closing costs. This arrangement can work well when both parties are looking for a fair and equitable way to handle the expenses. The specific percentage split can be negotiated between the buyer and seller, taking into consideration their financial capabilities and motivations. Splitting the closing costs ensures that both parties share the financial burden associated with the home purchase.
4. VA and Non-Allowable Fees
It’s important to note that while the seller can contribute towards the buyer’s closing costs, there are certain fees that cannot be paid by the seller. These fees are known as VA non-allowable fees and include:
| Non-Allowable Fees | Responsibility |
|---|---|
| Attorney fees | Buyer |
| Document preparation fees | Buyer |
| Escrow fees | Buyer |
| Notary fees | Buyer |
| Credit report fees | Buyer |
These fees are the responsibility of the buyer and cannot be paid by the seller, even if they agree to cover the closing costs.
5. Negotiating Closing Costs
During the negotiation process, both the buyer and the seller can negotiate the closing costs. The buyer can request seller concessions to reduce their out-of-pocket expenses, while the seller can consider including closing costs in the overall selling price. Effective negotiation can result in a win-win situation for both parties involved in the transaction.
In conclusion, the responsibility for paying the closing costs on a VA home loan can vary depending on the agreement between the buyer and the seller. It is important for both parties to thoroughly discuss and understand their options and to negotiate terms that are fair and reasonable for everyone involved.