A VA loan offers several benefits to buyers. Two major benefits are no down payment and reduced closing fees. While buyers don’t get to skip the closing costs completely, there are limits on the amount of closing costs that can be assessed to buyers on a VA loan. The following information will help buyers understand how much they can expect to pay in costs on a VA home loan.
How Much Can Borrowers Expect to Pay in Closing Costs?
Closing costs on a mortgage loan range from 2-5% of the total purchase price. These closing costs cannot be rolled into the VA loan; buyers will need to write a check at closing to cover these costs. This can come as a huge shock to buyers who are not expecting to pay any money at the mortgage closing appointment. VA loans are especially attractive to those borrowers who don’t have a lot of cash assets and are unable to put a lot of money down on a mortgage loan. As a result, these closing costs may present a hardship for borrowers. However, VA loans offer buyers a way to purchase a home without writing a large check to cover closing costs.
What Are the Limits for Closing Costs on a VA Loan?
Lenders typically charge a 1% origination fee on a VA loan; this fee is paid by the buyer at the time of closing. Lenders can then tack on costs to the loan, such as appraisal fees, costs for credit reports and tax and insurance escrow fees. Lenders are barred from charging closing fees and underwriting fees. They are also prohibited from charging a mortgage broker’s fee or any attorney fees (except attorney fees for title work). VA loans may also not be assessed pre-payment penalties and fees, which is another benefit for veterans.
Are Other Fees Assessed at Closing on a VA Loan?
The VA charges a VA funding fee that can be rolled into the mortgage and factored into the monthly payments on the loan. This funding fee is slightly different for active duty military personnel and veterans, as compared to funding fees for National Guard and Reserve personnel and veterans. Active duty members and veterans can expect to pay a funding fee of 2.15% on a first mortgage with no down payment, or 3.3% on a subsequent mortgage with no down payment. Guardsmen and Reservists and veterans can expect to pay 2.4% on a first mortgage with no down payment, or 3.3% on a subsequent mortgage with no down payment. If a veteran chooses to make a down payment on the loan, the funding fee is reduced slightly depending upon the amount of the down payment.
With a VA home loan, the VA is not providing the funding to purchase the home. The VA is simply guaranteeing the loan in the event the borrower is unable to pay the loan back. Veterans and recipients of VA home loans can choose from a long list of lenders. It is important to research thoroughly potential lenders and make the right choice based on overall costs, loan origination fees and interest rates, and other loan terms. Borrowers should also choose a lender with a solid reputation and a long history of assisting veterans and military personnel with obtaining home loans.