VA Loans & Closing Costs: What Are Your Options for Closing Costs When You Use a VA Loan?

Reservists, veterans, and active duty military may be able to take advantage of a VA loan. A VA loan makes it financially easier for military personnel to own a home. Those who are looking to take out a VA loan should be aware that it will be necessary to cover closing costs separately. However, VA loan applicants have options, as it may not always be necessary for them to pay out-of-pocket for all the closing costs required.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

What Are Closing Costs?

VA loan closing costs or settlement charges are generally a significant expense. Closing costs on a home mortgage loan can run up to 5 percent of the cost of the loan. For example, closing costs on a $400k home may be as much as $20,000. VA loan closing costs also often cover:

• Credit report
• Discount points
• Title charges
• Appraisal fee
• Origination charge

There may be other closing costs not directly related to a VA loan product.

Ways to Afford VA Home Loan Closing Costs

Being approved for a VA mortgage loan may mean that buyers have to pay less when it comes to closing costs. Buyers may be able to negotiate that sellers pay the entire amount of the loan-related closing costs. As part of the negotiations, a potential buyer may ask that the current owner also pays for “concessions,” which may go toward those closing costs not related to the loan itself. Potential seller concessions include:

• Payment of lease termination fees
• Credits for items left in the home
• Prepaid insurance costs and taxes

When a seller is not interested in paying closing costs, it may still be possible for someone using a VA loan to buy the home. Putting in a higher purchase offer and having the seller use the difference to pay for closing costs is yet another strategy. First-time home buyers want to work with an experienced agent familiar with negotiating on the behalf of applicants using a VA loan.

Other Considerations for Closing Costs

Military personnel do not have to make a down payment on a VA loan. Approved VA loan applicants can offset some of their closing costs by using funds that would have gone toward a down payment. Such a situation can make it easier to cover this expense. The cost of specific closing cost fees can vary by location. A VA loan professional can provide more specific information.

There are limitations placed upon a VA loan lender. Some fees, like the VA upfront funding fee, are usually rolled into the loan itself. In this way, buyers do not have to pay this fee at the time of closing on a home. Additionally, processing and underwriting fees may not be required from the applicant when they are charged a 1 percent origination fee. VA loan guidelines also stipulate that a veteran is not charged an escrow fee or an attorney fee outside title work.

Interested in a VA Loan?

There are many benefits to being approved for a VA loan. Unlike conventional loans, a down payment is not a requirement, making a VA loan a financially attractive option. Military personnel and their spouses can explore this home mortgage loan product and how to manage their closing costs.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.