Veterans have the distinct advantage of securing 100% financing with a VA loan. Just because you don’t need a down payment doesn’t mean you won’t pay closing costs, though. Luckily, the VA does have a say in which closing costs you pay, helping you to keep your loan costs to a minimum.
Below are the typical closing costs you’ll find on a VA loan.
The VA Funding Fee
No matter where you live or which lender you use, the VA funding fee is a requirement. The only veterans that are excluded from this fee are veterans that were disabled during their time on active duty or as a result of their active duty. These veterans must have a disability rating from the VA and be deemed exempt from the VA funding fee.
The only other borrowers that may be exempt from this fee are surviving spouses of veterans that lost their lives during active duty or as a result of their time on active duty. Everyone else will pay 2.15% of the loan amount if they served in the active military or 2.4%, if they served in the Reserves or National Guard.
Some lenders may charge an origination fee on a VA loan. This is the lender’s fee to cover the cost of underwriting and processing the loan. The VA allows lenders to charge a maximum 1% origination fee. This is a percentage of your loan amount, so a veteran with a $200,000 loan might pay $2,000.
If the lender charges an origination fee, they cannot itemize other lender specific fees, such as underwriting or processing fees.
All VA loans require an appraisal unless you are refinancing with the VA IRRRL program. The appraisal is a report the lender receives to let them know if the home is worth enough for them to write the loan amount you need.
The cost of the appraisal will differ by area and by appraiser. On average, you can expect to pay between $300 and $600 for the appraisal, though.
If you want to secure a lower interest rate, you can ‘buy the rate down,’ by paying points. One point usually knocks an interest rate down 0.25 – 0.5%. It’s up to you if you want to pay this fee. Generally, if you won’t stay in the home for the long-term this expense isn’t worth it in the end. If this is your ‘forever home’ though, it could be worth the cost, as you’ll save on interest over the life of the loan.
Buyers often pay for the title search/report as well as the title insurance. The title report helps lenders and yourself know that the there aren’t any outstanding liens or claims of ownership on the home. The title insurance protects the lender (lender’s policy). If someone tries to stake a claim in the property or claims to have a lien on the property, the insurance will cover the charges the lender faces to get to the bottom of the issue.
You may also opt to purchase an owner’s policy. This insurance protects you against any claims against your property, just as the lender would be protected. This is a one-time premium that you pay and it protects you from financial loss due to other claims on your property.
Credit Report Fees
The credit report fee is something the credit bureaus charge the lender to pull your credit. Some lenders pass this fee onto borrowers. It’s usually between $25 – $50, but is worth mentioning since every dollar adds up when you are talking about thousands of dollars in closing costs.
The VA doesn’t require a pest inspection fee, but if you do decide to have one done, the seller must pay for it. Buyers/veterans can pay the well and septic inspection fee though. This is an in-depth inspection of the well and septic system on the property to make sure it’s in good, working condition. This fee is well worth the cost as the cost of repairing these systems can be rather costly. Buyers typically want to know before they buy the home if the well and septic are in good condition.
Each county has a different fee they charge to record the mortgage documents when you close on a loan. When your documents are recorded, they become public knowledge. In other words, anyone can search for your address and know the name of the owner, the mortgage amount on the home, and the amount of the real estate taxes.
Typically, veterans will also pay for the prepaid expenses on a mortgage. This includes prepaid interest, real estate taxes and homeowner’s insurance. If you set up an escrow account, you will have to fund the account with enough money to cover the taxes based on the shortage the account will have after you make your required payments. The amount you must pay is determined by your closing date and the due date of your taxes and insurance.
The typical closing costs for a VA loan are usually lower than any other loan. Veterans are exempt from paying document fees, closing fees, underwriting fees, processing fees, application fees, and courier fees. Other loan programs don’t restrict these fees, which means lenders may charge them on your loan.