How Much Are Closing Costs on a VA Loan? A Complete Breakdown

Closing costs are the fees you pay to finalize your VA mortgage and complete the home buying process These costs can range from 1% to 6% of your total VA loan amount. While closing costs may seem high, VA guidelines limit some fees and make it possible for the seller to pay up to 4% of the purchase price. Read on for a detailed look at typical VA closing costs

VA Loan Closing Costs Overview

Closing costs on a VA mortgage usually total between 1% and 6% of your loan amount. For example, on a $300,000 loan, you may pay $3000 to $18000 in closing costs.

Here are some of the main fees that factor into your total VA closing costs

• Origination Fee – Up to 1% of the loan amount. This covers lender processing costs.
• VA Funding Fee – Ranges from 1.4% to 3.6% of the loan amount. Goes to the VA to support the program.
• Appraisal Fee – $400 to $1,200 for the VA appraisal.
• Credit Report Fee – Up to $50 for your credit report.
• Title Fees – For title insurance, around $700 on average.
• Recording Fees – To file your loan documents, around $200.
• Taxes and Insurance – Prepaid property taxes and homeowners insurance.

Seller concessions and points can also add to your closing costs total. The VA limits certain fees and makes it possible to offset costs through negotiations.

VA Loan Closing Costs Breakdown

Beyond the overview, it helps to understand the specifics of each VA closing cost. Here are details on fees that commonly factor into your total.

Origination Fee

Lenders charge this fee to cover underwriting and processing costs. The VA limits this fee to 1% of the total loan amount. On a $300,000 loan, that would equal a $3,000 origination fee.

VA Funding Fee

The VA funding fee is unique to VA loans. This mandatory fee helps support the VA loan program. For first-time users, the fee is 2.3% of the loan amount if you make a down payment of less than 5%, or 1.65% with a down payment of at least 5%.

On a $300,000 loan with no down payment, the funding fee would total $6,900. This fee can be paid upfront or rolled into the loan. Certain disabled veterans are exempt.

Appraisal Fee

You must get a VA appraisal, which costs between $400-$1,200 paid upfront. The exact fee varies based on your location and appraiser.

Credit Report Fee

Lenders may charge around $50 to pull your credit report. This helps them verify your creditworthiness.

Title Insurance Fees

Title insurance protects against issues like liens or title defects. Plan on paying for both lender’s and owner’s title insurance, which averages around $700 total.

Recording Fees

These fees charged by local governments cover filing your deed and loan documents. Recording fees are around $200 on average.

Taxes and Insurance

You’ll need to pay a portion of your property taxes and homeowners insurance premium at closing. Taxes vary by location but may be thousands per year. Expect to prepay a few months.

Discount Points

You can pay discount points upfront to lower your interest rate. Each point costs 1% of the loan amount and may lower your rate by 0.25%. Points are optional.

Other Costs

Closing costs can also include fees for services like a home inspection, pest inspection, flood certification, homeowners association application, and more. Shop around to find the best rates.

Who Pays Closing Costs on a VA Loan?

The buyer pays VA closing costs in most cases. However, the VA allows sellers to pay up to 4% of the purchase price toward fees. For example, on a $300,000 home, the seller could contribute up to $12,000.

Sellers often cover origination fees, discount points, a portion of the funding fee, prepaid taxes, and other costs. This negotiable contribution is called a seller concession. VA loans have no limit on concessions.

How to Reduce VA Loan Closing Costs

Here are some tips for keeping closing costs in check with a VA mortgage:

• Shop lenders – Compare quotes to find the best rates and fees.
• Negotiate concessions – Ask the seller to cover allowable fees.
• Apply credits – Some lenders offer lending credits to offset costs.
• Pay points – Buying down the rate reduces long-term interest.
• Use down payment – The higher your down payment, the lower your funding fee.
• Roll costs into loan – Increases payment but spreads out upfront costs.

Are VA Loan Closing Costs Tax Deductible?

Some closing costs on a VA loan may be tax deductible, including:

• Points – Discount points to buy down the rate are deductible.
• Interest – Prepaid interest can be deducted.
• Taxes and insurance – If part of escrow payment.

To claim deductions, you must itemize on your tax return. Consult a tax pro to maximize savings.

When Are Closing Costs Due on a VA Loan?

Closing costs are due on the day you close on the home and sign the final loan documents. The lending process leading up to closing includes:

Preapproval – Initial estimate of costs based on credit.
Underwriting – Verification of income, assets, credit.
Final approval – Contingent on appraisal of home.
Closing disclosure – Final closing cost estimate within 3 days of closing.

Come prepared with certified funds or cashier’s check to pay closing costs and down payment at closing.

Estimate Closing Costs with a Loan Estimate

Within 3 days of your application, the lender provides a Loan Estimate detailing estimated closing costs. This breaks down all expected fees over the life of the loan.

Compare Loan Estimates across multiple lenders to get the best deal. Costs can change slightly between the estimate and final closing disclosure.

The Bottom Line

Closing costs on a VA loan generally total 1% to 6% of the mortgage amount. The VA limits certain fees, like capping origination at 1% of the loan. Sellers can also cover up to 4% of the purchase price in closing costs through negotiation. This helps VA buyers keep thousands of dollars in closing expenses in check.