VA Loan Closing Costs: How Much Are They And Who Pays Them?

VA loans offer military service members, eligible veterans and qualifying surviving spouses the opportunity to get into a new home without a VA loan down payment. However, that doesn’t mean you’ll be able to close without any cash in the bank. VA loan closing costs are definitely something you should be aware of as you navigate the home buying process.

But what closing costs should you look out for regarding a VA loan? Let’s take a closer look.

Anytime you use a mortgage to fund a home purchase, you’re going to run into closing costs. Essentially, closing costs are the fees you pay to the lender for their assistance in creating your loan.

“Closing costs” is a broad term used to define a wide range of fees you’ll encounter through the closing process, including your home appraisal and the title search. Department of Veterans Affairs (VA) loans include fees specific to this type of mortgage, such as the VA funding fee, which we’ll discuss in the next section.

You’ll have to pay the closing costs when you’re signing the final paperwork of your home mortgage process. At the mortgage closing, you’ll have to bring any down payment and closing costs for the loan – although it’s important to note here again that mortgages insured by the VA don’t typically require a down payment.

As with most components in the VA loan process, closing costs will look different from other types of mortgage loans. Here’s where VA closing costs diverge from the traditional home buying process.

Non-Allowable Fees

When you choose a VA loan, there are some fees that the lender cannot require you to pay, known as nonallowable fees. A few include any prepayment penalties, settlement charges and attorney fees from the lender.

When you’re using a different type of mortgage – such as a conventional loan – you may be required to pay attorney fees from the lender and settlement charges. Financing with a VA loan allows you to avoid these costs.

However, there are some allowable fees that might be required. These include the VA funding fee, loan origination fees, recording fees, credit report fees, discount points, title insurance and other closing fees.

Limited Origination Fee

A lender will charge a mortgage origination fee for underwriting and processing the loan. When you use a VA loan, there are limits on the fees that lenders can charge.

VA borrowers can’t be charged more than 1% of the total loan amount as an origination fee when using a VA loan. Typically, mortgage loan origination fees range from 0.5% – 1% of the total loan amount, which is in line with what you might pay with a different type of mortgage loan.

VA Funding Fee

The VA funding fee is a unique cost when you take out a VA loan. This is a one-time fee that you pay to the Department of Veterans Affairs. The point of the funding fee is to support the continuation of the VA loan program.

The cost of the funding fee depends on what type of mortgage you are getting (a home purchase or refinance), how many times you’ve used your VA loan benefit, and how much you are putting as a down payment on the home purchase price. The funding fee represents a percentage of your loan amount, so the larger the down payment you make, the smaller your funding fee will be.

For example, let’s say you make a down payment of less than 5% on your first home purchase using the VA loan. With that, you would have to pay a funding fee of 2.15% of the total loan amount. But if you made a down payment of 10% or more, then your funding fee would only be 1.25%.

But there are some unique cases in which you wouldn’t have to pay the funding fee at all. You don’t have to pay the funding fee if you are:

• Receiving, or eligible to receive, VA compensation for a service-related disability
  
  
• The surviving spouse of a veteran who died in service or from a service-related disability
  
  
• The recipient of the Purple Heart

If you aren’t sure that you qualify for a VA funding fee waiver, talk to your mortgage lender. They can verify this with the VA.

VA Appraisal Fee

In any home purchase, you’ll likely have to pay an appraisal fee. But when you choose a VA loan, there is a specialized VA appraisal fee.

You should expect to pay $425 – $875 for a VA appraisal fee, which will be included in the closing costs.

Discount Points

Mortgage discount points are available with most types of home loans, including VA loans. When you choose to buy discount points, you’ll be expected to cover the costs at the closing date.

You’ll have to assess your situation to determine if the upfront cost of discount points is worth it for your situation. Our complete guide to mortgage points can help you decide.

How much are VA loan closing costs?

The exact amount that you’ll pay in VA loan closing costs will vary based on the home you choose and the details of your loan. However, you should expect closing costs to be 3% – 6% of the total value of the loan.

Who pays closing costs on a VA loan?

When using a VA loan, the buyer, seller and lender each pay different parts of the closing costs. The seller cannot pay more than 4% of the total home loan in closing costs. However, the seller is responsible for the commissions for buyer and seller real estate agents, as well as any brokerage fee and, sometimes, the termite inspection and well-water inspection fees.

As the buyer, you’ll have to pay the VA funding fee, loan origination fee, loan discount points, the VA appraisal fee, title insurance and more. However, you can also negotiate seller concessions, which means you ask the seller to cover some of your closing costs, such as property taxes, title fees or part (or possibly all) of the funding fee. Finally, the lender will cover some of the typical closing costs such as the attorney’s fees.

The VA sets limits on the costs facing the home buyer. For example, the limited origination fee can help to keep your costs low.

Can I roll closing costs into my VA loan?

You might not have the funds available to pay your closing costs and fees in cash at the closing. That’s okay! The VA loan allows you to roll some of the closing costs into your total loan amount.

The big thing is that you can roll your funding fee into the total mortgage amount. Although you’ll pay more in interest, this can help you get into a home now.

Other closing costs might not be eligible to be rolled into the loan, but you may receive seller or lender concessions to bring the upfront cash cost down.

As a veteran, taking advantage of the VA loan benefit can help you get into the home of your dreams quickly. Instead of having to wait and save a large down payment, you can start putting down roots in a home today. That’s why the VA loan is one of the top benefits of military service.

Ready to start your home search? Apply for a VA loan with Rocket Mortgage® today.