Do You Pay Closing Costs with a VA Loan?

Getting a VA home loan is an excellent option for eligible veterans, active-duty service members, and surviving spouses. VA loans offer key benefits like no down payment requirement, no private mortgage insurance, and competitive interest rates. But like any mortgage, VA home loans do come with closing costs.

In this comprehensive guide, we’ll explain everything you need to know about VA loan closing costs. We’ll cover

• What closing costs are
• Typical VA closing costs
• Who pays VA closing costs
• How VA closing costs compare to other loans
• Whether you can roll closing costs into a VA loan
• When you’ll know your final VA closing costs

What Are Closing Costs on a Mortgage?

First, let’s briefly go over what closing costs are for any mortgage. Closing costs refer to the various fees required to finalize and close on a home loan. These costs cover processing, underwriting, and third-party services related to your mortgage.

Closing costs on loans typically range from 2% to 5% of your total loan amount. On a $200,000 mortgage, you can expect to pay $4,000 to $10,000 in closing costs. These fees are due at closing and can either be paid upfront, rolled into the loan, or paid by the seller.

Typical Closing Costs on a VA Home Loan

VA loans have specific closing costs set by VA guidelines. Here are some of the common VA closing costs you’ll encounter:

• VA Funding Fee: This fee helps the VA cover administrative costs. For first-time VA loan borrowers, it equals 2.15% of the loan amount if you make a down payment under 5%. Disabled veterans are exempt.

• Origination Fee: VA lenders can charge up to 1% of the loan amount for originating the mortgage.

• Appraisal Fee: Costs $400 to $1,200 depending on the property location. Goes toward the mandatory VA appraisal.

• Credit Report Fee: Up to $50 for the lender to pull your credit report.

• Title Insurance: Protects against undiscovered title defects. Includes lender and owner policies.

• Recording Fees: Paid to state/local government to record deed and loan documents.

• Daily Interest: Prepaid interest from closing date through month’s end.

• Property Taxes: Prorated share of upcoming property tax bill due at closing.

• Homeowners Insurance: Prepaid premium for first year of homeowners insurance.

• Discount Points: Optional, paid to receive a lower interest rate. Each point costs 1% of the loan amount.

So in total, closing costs on a VA loan typically range from 1% to 6% of the total loan amount. On a $200,000 loan, expect to pay about $2,000 to $12,000.

Who Pays Closing Costs on a VA Home Loan?

The buyer is typically responsible for paying all closing costs on a mortgage, including VA home loans. But the great news is that with a VA loan, you can often negotiate with the seller to pay some or all of your closing costs!

Here are the main options for covering closing costs with a VA mortgage:

• Buyer pays all costs – The most common scenario. Closing costs are paid from your funds at closing.

• Seller concessions – Sellers can agree to a credit covering some VA closing costs, up to 4% of the home’s purchase price. This must be negotiated.

• Lender credits – Your lender may offer a credit toward closing costs, typically by raising your interest rate slightly.

• Rolled into loan – Only the VA funding fee can be financed into the loan amount.

As you can see, you have options! Meet with your lender early in the process to discuss closing costs and strategize on the best approach.

How Do VA Loan Closing Costs Compare to Other Mortgages?

VA loans have closing costs that are similar to conventional loans, with a few key differences:

• Lower origination fees – VA lenders can only charge up to 1% of the loan amount. Other loans often charge higher origination fees.

• Added VA funding fee – This fee only applies to VA loans. It usually ranges from 1.4% to 2.15% of the loan amount.

• No PMI – Private mortgage insurance added to your monthly payment is common with conventional loans but not required on a VA loan.

• Flexible seller concessions – VA loans allow unlimited seller contributions toward closing costs if negotiated, while FHA and conventional loans place limits on this.

Overall, closing costs on a VA loan are very competitive with other mortgage options, thanks in large part to the flexibility in negotiating seller concessions. VA loans give homebuyers more leverage when it comes to closing costs.

Can You Roll Closing Costs Into a VA Home Loan?

With most mortgage loans, you have the option to finance closing costs by rolling them into the total loan amount. This increases your loan balance and monthly mortgage payment but allows you to pay closing costs over time.

However, VA guidelines only allow the funding fee to be financed into the loan amount. No other closing costs can be rolled into a VA loan.

Instead, work with your lender to utilize a lender credit or negotiate with the seller on covering your closing costs through concessions. This will save you money compared to financing closing costs into your loan.

When Will I Know My Final VA Closing Costs?

You won’t get an accurate estimate of your closing costs until you have a fully completed loan application with property address, loan amount, credit info, income verification, and other specifics.

Once the lender has your full application, here’s the timeline:

• Within 3 days – The lender sends a Loan Estimate detailing estimated closing costs.

• At least 3 days before closing – The lender sends a Closing Disclosure with your final closing costs.

• At closing – You pay the disclosed closing costs, through your funds, seller concessions, or lender credits.

Get pre-qualified early in the homebuying process so your lender can provide closing cost estimates tailored to your scenario. Rely on the Loan Estimate for an early picture of estimated closing costs.

VA Loan Closing Costs Can Be Negotiated

The bottom line is that yes, VA loans do come with closing costs. But the exact amount is flexible based on your negotiation strategy with sellers and lenders.

Put yourself in a strong position by:

• Getting pre-qualified early for a ballpark estimate of costs
• Reviewing the Loan Estimate closely
• Asking sellers to cover allowable closing costs
• Exploring lender credit options with your lender

With the right approach, you can reduce your out-of-pocket VA closing costs and still benefit from the many perks of a VA home loan.