The Complete Guide to VA Loan Closing Costs
If you’re considering a VA loan for your home purchase, you’re already on the right path to securing a home with benefits tailored specifically for veterans, active-duty service members, and eligible spouses. However, while the VA loan offers fantastic advantages, such as no down payment and competitive interest rates, closing costs are still a part of the process. This guide will walk you through the ins and outs of VA loan closing costs, what they include, and how you can manage them.
What Are Closing Costs?
Closing costs are fees and expenses you pay when finalizing a home loan. These typically include various lender fees, third-party services, taxes, and prepaid items. For VA loans, some of these costs are limited, offering extra savings for the buyer.
Common VA Loan Closing Costs
While closing costs can vary based on location and loan specifics, here are the most common fees you can expect when closing a VA loan:
- VA Funding Fee: The VA funding fee is unique to VA loans and is a one-time payment required by the Department of Veterans Affairs. This fee helps keep the VA loan program running without requiring additional taxpayer funding. The fee varies depending on factors like your military status, the size of your down payment (if any), and whether it’s your first time using a VA loan.
- First-time use with no down payment: 2.3% of the loan amount
- Subsequent use with no down payment: 3.6%
The fee can either be paid upfront or rolled into the loan amount, allowing you to finance it over time.
- Loan Origination Fee: This is a fee charged by the lender for processing the loan. By law, the VA limits this fee to 1% of the total loan amount.
- Appraisal Fee: The VA requires an independent appraisal to ensure the home’s value matches the purchase price. This fee can vary based on location but typically ranges from $500 to $800. The borrower is responsible for covering this fee.
- Title Fees: Title services include a variety of costs associated with verifying the legal ownership of the property and ensuring no other parties have a claim to it. These can include: Title search and Title insurance (protects you and the lender from any legal claims on the property). Title fees typically range between $1,000 and $2,000, depending on where you’re purchasing the home.
- Credit Report Fee: Lenders will need to pull your credit report to determine your eligibility and set your interest rate. This usually costs around $30 to $50.
- Discount Points: Discount points are an optional fee that borrowers can pay to lower their interest rate. Each point typically costs 1% of the loan amount and can reduce the interest rate by about 0.25%. Deciding whether to pay for points depends on your long-term goals, but they can offer significant savings over time if you plan to stay in the home for many years.
- Prepaid Property Taxes and Homeowners Insurance: Lenders may require you to prepay certain costs like property taxes and homeowners insurance to set up your escrow account. The amounts depend on your local tax rate and insurance premiums.
- Recording Fees: Local governments charge a fee to record your home purchase in public records. These costs vary by location but are usually between $25 and $250.
Which Fees Are Veterans Exempt From?
One of the major benefits of a VA loan is that the Department of Veterans Affairs limits the types of fees that veterans are required to pay. Some fees you won’t be responsible for include:
- Attorney fees
- Escrow fees
- Underwriting fees
Bottom Line
While VA loans offer substantial savings and benefits for veterans, it’s important to be prepared for the closing costs involved. By understanding the common fees and strategies to reduce them, you can make the process smoother and potentially save thousands. Talk to your Arbor Home Loans Mortgage Officer today to explore your options to get the best deal on your VA loan closing costs.