VA loans are known for their easy to qualify for requirements and low rates, but what about the closing costs? How do they compare to other loans? Because VA loans are for veterans, even their closing costs are low in order to make the loan affordable for those that served our country. Like any other loan, there are certain costs that are required, while others may be negotiable with different lenders.
Funding Fee
The funding fee is a required cost that comes directly from the VA. This fee helps fund the VA and the guarantee it provides on loans. The fee is put into place in order to reduce the burden these loans put on taxpayers. The fee charged depends on several factors including:
- The amount of the down payment (you can put nothing down and still qualify)
- The branch of military you served in
- The loan amount
- Whether you are a first-time homebuyer or not
There are certain veterans that are exempt from the funding fee. They include:
- Veterans that became disabled as a result of their service
- Surviving spouses of veterans that lost their life while in service
Generally, veterans pay 2.15 percent of their loan amount for a funding fee, but the amount can differ for a variety of reasons.
- If you put down between 5 and 10 percent on the home, your funding fee decreases to 1.5 percent
- If you put down more than 10 percent on the home, your funding fee decreases to 1.25 percent
If you are in the National Guard, your funding fees differ as follows:
- The general fee for veterans that put down less than 5 percent is 2.40 percent of the loan amount
- If you put down between 5 and 10 percent on the home, your funding fee decreases to 1.75 percent
- If you put down more than 10 percent on the home, your funding fee decreases to 1.5 percent
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If you use your entitlement benefit a subsequent time, the funding fee increases to 3.30 percent for veterans not in the National Guard. The numbers decrease as follows for subsequent homeowners:
- If you put down between 5 and 10 percent on the home, your funding fee decreases to 1.5 percent
- If you put down more than 10 percent on the home, your funding fee decreases to 1.25 percent
If you were in the National Guard, your funding fee for no down payment or a down payment less than 5 percent is the same as a veteran, but if you put down larger down payments, the funding fee is .25 percent higher than veterans or those on active duty.
Other VA Loan Closing Fees
As with any other loan type, there are general loan fees you pay in order to get a loan. The VA regulates the fees charged on your VA loan, however, so you can rest assured that the fees are affordable and within regulation.
The fees you are most likely to be able to negotiate include the origination and discount fee. These fees are paid directly to the lender in conjunction with your loan. They change the fee based on what interest rate they provide you as the interest is how they make money on your loan. If you are a higher risk, meaning you have a higher debt ratio or lower credit score, they may charge you a higher origination fee in order to make up for that risk. The discount fee is directly related to the interest rate charged – the lower the rate, the higher the discount fee in order for the bank to make a profit.
The other standard fees lenders charge for your mortgage loan are not as negotiable, as they are a standard part of putting a loan package together. These fees include credit report fees as the bureaus charge the lender to pull your credit for verification purposes; appraisal fees that the appraiser charges to create the written appraisal of your property; title search fees that the title company charges in order to determine that your property is free and clear of any liens; and title insurance fees which covers the insurance necessary to protect your home from lawsuits regarding any liens that they claim were in place before you took possession of the property. Last, but not least, the county charges you a recording fee to record your new deed with the county.
When you compare the fees on a VA loan to any other loan, they are comparable, if not lower than other loans. Make sure you take the time to shop around though, as every lender has their own charges. For example, one lender might charge you a lower discount fee for the same interest rate or might not charge you an origination fee at all. You will not know what you can get until you shop around with several lenders before deciding on which lender will provide you with your VA loan.
