As a veteran, you have earned valuable benefits, including the opportunity to obtain a VA home loan. However, many veterans are surprised to find that VA loans still come with closing costs. While the VA funding fee is waived, there are other fees that you will need to pay to finalize your mortgage. Understanding these various closing costs on a VA loan will help you budget properly and avoid unexpected surprises.
Closing costs on a VA loan include origination fees, appraisal fees, credit report fees, recording fees, and title insurance. Origination fees pay for the lender’s work in processing your loan application. Appraisal and credit report fees provide necessary assessments of the property and your credit. Recording and title insurance fees legally establish your ownership of the property.
Though closing costs cannot be waived, many can be negotiated with your lender. Knowing which fees are fixed versus negotiable will put you in the best position to minimize your out-of-pocket expenses. With the right preparation and knowledge, you can reap the full benefits of your VA home loan with confidence. This article provides an overview of the typical closing costs you can expect with a VA mortgage so you know exactly what to budget for your new home.
What Are Closing Costs on VA Loan?
Closing costs on VA loans refer to the fees charged to finalize your VA mortgage. These costs typically range from 2% to 5% of your loan amount. As a veteran, the VA funding fee is waived, but you will still need to pay other closing costs like appraisal fees, origination fees, and title services.
When getting a VA mortgage, it’s important to understand what closing costs cover and plan for them in your budget. The major types of closing costs include:
- Appraisal fee: The appraisal determines the property’s market value to ensure the sales price is reasonable. Appraisal fees typically range from $300 to $1,000 depending on the local market and property value.
- Origination fee: The origination fee covers the lender’s administrative costs to process your loan application. It’s usually 0.5% to 1% of the mortgage amount.
- Title services: Title fees pay for a title search to check for any liens or claims on the property and title insurance which protects the lender’s investment. Title fees commonly cost $500 to $2,000.
- Recording fees: Recording fees cover the cost for your lender to officially record the property’s title and your loan documents. Fees range from $75 to $500 depending on the local municipality.
- Credit report fee: The credit report fee pays for the lender to check your credit report which costs around $30 to $50 per person.
In summary, closing costs cover essential services required to successfully close on your VA home loan. Make sure you understand all fees involved and have them included in your total home buying budget. With some negotiation, you may be able to lower certain closing costs, allowing you to get into your new home for less.
Common Closing Costs for VA Loans
When obtaining a VA loan, there are several standard closing costs you can expect to pay at the time of closing in addition to your down payment.
The VA requires an appraisal to determine if the property value is sufficient for the loan amount. Appraisal fees typically range from $300 to $500.
Origination fees are charged by the lender to process your loan application. They usually amount to 1% of the loan amount. So for a $200,000 loan, origination fees would be around $2,000.
Credit Report Fees
Lenders will charge a fee to pull your credit report to verify your credit score and history. This typically costs between $30 to $60 per applicant.
Recording fees are charged by local governments to formally record legal documents like deeds, mortgages, etc. They vary but often amount to a few hundred dollars.
Title insurance protects the lender (and you) in case issues emerge regarding the legal title to the property. Fees depend on the purchase price of the home but often amount to around $1,000 total.
If property taxes are due soon after closing, the lender may require funds to pay them at closing. The amount will depend on the value of the property and local tax rates.
In summary, you can expect to pay between 2-5% of the total loan amount in closing costs for a VA loan. While it can seem steep, keep in mind that VA loans offer significant benefits like no down payment and no private mortgage insurance. With some negotiation, you may be able to lower certain fees as well. Understanding the fees upfront will help ensure there are no surprises at closing.
How to Minimize Closing Costs on a VA Loan
To minimize closing costs on a VA loan, there are several steps you can take:
Shop Around at Different Lenders
Compare quotes from various VA-approved lenders to find the most competitive rates and lowest fees. Lenders set their own rates and costs within VA guidelines, so shopping around can potentially save you thousands of dollars. Check online mortgage companies in addition to local banks and credit unions.
Negotiate the Best Deal
Once you receive loan estimates from different lenders, compare the details line by line. Use the lowest overall fees and interest rates you found as leverage to try and get your preferred lender to match or beat it. Ask if they can waive or reduce certain charges like the appraisal or underwriting fees. The worst they can say is no, but many lenders will work with you to earn your business.
Pay Some Costs Upfront
If possible, offer to pay for a portion of the closing costs upfront in cash. This reduces the amount that will be rolled into your loan amount, which in turn lowers your payments over the life of the loan. Paying just 1-3% of the purchase price in closing costs upfront can save thousands in interest charges.
Check if Seller Will Pay
See if the home seller is willing to pay for some or all of the closing costs. This is more likely if you have a strong offer or in a competitive housing market. The seller pays the fees directly to the settlement agent so you can get into your new home with little to no money out of pocket. Just be sure to account for the closing costs when determining your offer price.
By shopping around at different lenders, negotiating the best deal possible, paying some costs upfront in cash, and asking the seller to contribute, you can significantly lower your closing costs on a VA home loan. Following these steps will help ensure you get the lowest possible rates and fees so more of your money goes toward your down payment and home equity rather than getting lost in various charges.
In summary, closing costs are an inevitable part of obtaining a VA home loan. While the VA funding fee and other standard fees cannot be avoided, you can shop around at different lenders to get the best overall deal. Make sure you understand all the fees and costs upfront so there are no surprises at closing. With some rate shopping and negotiation, you can often lower your closing costs and get into your new home with the peace of mind that comes from a VA-backed mortgage. By preparing well and knowing your options, you can navigate the closing process confidently and end up with a loan that serves you well for years to come.