How much are closing costs on a VA loan?

If you’re an active-duty military member, veteran, or surviving spouse, you may qualify for a VA loan. Backed by the Department of Veterans Affairs, a VA loan helps eligible borrowers buy a home with no down payment, lower fees, and other benefits compared to conventional mortgage loans.

While some VA loan closing costs are limited, it’s still important to plan for these expenses. Let’s look at what you can expect to pay for closing costs with a VA loan.

What are VA loan closing costs?

Closing costs are the fees you pay your lender and other service providers for originating and funding your loan and transferring legal ownership of the property.

VA mortgage loan closing costs usually include a home appraisal and title search fees. VA loans come with their own requirements and closing costs, such as the VA funding fee and the specialized VA appraisal. You are also required to get a Certificate of Eligibility (COE) to show your lender that you qualify for a VA loan.

You pay closing costs when you sign the final paperwork for your mortgage and home purchase. You can pay closing costs in cash, or you may be able to roll them into your loan amount.

VA funding fee explained

For VA loans used for a home purchase or construction, the VA funding fee is based on your down payment, the percentage you put down on the property, and whether it’s your first VA loan. Just be aware that a higher down payment translates to a lower funding fee.

VA funding fee rates

If you’re buying a home or using a home loan for new construction, these are the VA funding fee rates:

If you’re using a VA loan for a cash-out refinance, you’ll pay 2.15% for the first use and 3.3% for subsequent loans. Other rare scenarios can lead to discounts and lower fees, but most people end up paying in that 1.25% to 3.3% range.

Additionally, be aware of the type of loan you’re seeking within the VA loan program. For example, a streamline refinance, also called an interest rate reduction refinance loan (IRRRL), differs from a cash-out refinance.

First-time use

If you’re a first-time VA loan borrower (which isn’t necessarily the same thing as a first-time home buyer), you’ll get a lower fee with a down payment of more than 5%, not less.

Unlike purchase loans, funding fee rates for VA refinance loans remain the same, regardless of your down payment. For cash-out refinance loans, you’ll pay 2.15% for the first use. Also, if your previous VA loan was used solely for a manufactured home, you are still considered a first-time borrower for funding fee purposes.

After the first use

For subsequent loans, you’ll pay the same fees for standard purchase and construction loans with at least 5% down. You’ll pay more for loans with less than a 5% down payment.

Case in point: Let’s say you are a first-time buyer who needs a $300,000 VA home loan, but you plan to put down less than 5%. If so, you would pay a funding fee of $6,450 (2.15%), whereas a second-use borrower would pay $9,900 (3.3%), which is a difference of $3,450.

For cash-out refinancing, the fee is 3.3% after the first use.

How are VA loan closing costs different?

Most closing costs are similar, if not identical, regardless of which loan type you’re using. However, it is essential to be aware of the specific rules and fees associated with VA loans.

Nonallowable fees

The VA works to keep its loans affordable by limiting the fees others can charge for originating VA loans. You should also be aware of these completely nonallowable fees for VA loan borrowers.

• Real estate attorney fees
• Application fees
• Rate lock fees
• Department of Housing and Urban Development inspections
• Prepayment penalties

Conventional mortgage borrowers often pay separate, itemized fees for a lender’s attorney, document preparation, or processing. But the VA prohibits these as standalone charges for the borrower. Instead, the VA has a 1% rule, which requires that these administrative and lender legal costs be absorbed into a single flat origination fee, which cannot exceed 1% of your total loan amount.

Fees VA loan borrowers can expect to pay include:

• VA funding fee
• Loan origination fees
• Recording fees
• Credit report fees
• Costs for discount points and title insurance

Any lender you work with for a VA loan should be able to walk you through what’s allowed and not allowed.

Limited origination fee

Origination fees can vary based on your chosen lender, mortgage market conditions, your credit score, and other factors. But with a VA loan, there’s a maximum you’ll pay: 1% of your loan amount, as stated earlier.

Most borrowers pay an origination fee of 0.5% to 1.0% for a VA loan. Origination fees are just one piece of your overall borrowing cost. Your VA mortgage rate may be an even bigger factor. If you’re shopping around for a VA loan, you can use APR to compare all-in costs, including interest and fees.

VA appraisal fee

With most home purchases, you’ll have to pay an appraisal fee. When you choose a VA loan, there’s a specialized VA appraisal fee.

The amount you’ll pay for the VA appraisal fee will vary based on the type and size of home you’re purchasing and the market for homes in your area. You can expect to pay $525 to $1,550 for the VA appraisal fee.

Who pays closing costs on a VA loan?

As with any mortgage, closing costs are split between the buyer, seller, and lender. You may be able to negotiate with the other party to request they pay a larger portion, and you may also look for discounts from service providers.

The buyer

The buyer pays the VA funding fee, the loan origination fee, the fee for any discount points, the VA appraisal fee, and the title insurance fee, among others.

Buyers can negotiate concessions from the seller, which means asking the seller to pay some or all their closing costs, such as property taxes, title fees, or the VA funding fee.

The seller

The seller can’t pay more than 4% of the home loan amount in closing costs. However, the seller is traditionally responsible for paying the commission for the real estate agents, as well as brokerage fees and the VA loan termite and pest inspection, if needed.

The 4% cap doesn’t apply to all closing costs. For example, if a seller agrees to pay for the buyer’s discount points, it could push the seller’s closing costs above 4%.

The lender

Finally, the lender will cover costs such as attorney fees. These expenses, along with processing and underwriting, are usually bundled into a single flat fee that cannot exceed 1% of your loan amount. This prevents you from being charged any unexpected fees for the lender’s administrative work.

Can closing costs be included in a VA loan?

Typically, only the VA funding fee can be rolled into the loan. While you can’t finance many of the other fees, seller concessions and lender concessions can help reduce the up-front cash cost.

Are VA loan closing costs tax-deductible?

The VA funding fee portion of your closing costs may be tax-deductible. However, you can only deduct the amount you paid in closing costs during a particular tax year. So, if you decide to roll your VA funding fee into your mortgage, it won’t be tax-deductible.

When in doubt, consult with a trusted tax expert, such as a CPA or licensed financial advisor, who can help you create the most financially beneficial tax plan.

The bottom line: Understanding VA closing costs

While you should prepare to pay closing costs on a VA loan, what you must pay out-of-pocket is limited, and the VA funding fee can be rolled into your loan amount. For this reason and others, the VA loan is one of the top benefits of military service.

Ready to purchase a home with a VA loan¹? Begin the approval process² with Rocket Mortgage³ today.

¹Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency.

²Refinancing may increase finance charges over the life of the loan.

³Rocket Mortgage is a trademark of Rocket Mortgage, LLC or its affiliates.