The Complete Guide to Typical VA Loan Closing Costs

Buying a home is an exciting experience, but it also comes with a lot of fees called closing costs. Closing costs are charges paid to finalize a mortgage loan and transfer ownership of a property.

When getting a VA loan, you can expect to pay typical closing costs along with a few fees specific to VA loans. While closing costs can add up, there are ways VA buyers can reduce these expenses.

In this comprehensive guide, I’ll break down typical VA loan closing costs, how they work, and tips to lower your total fees.

Overview of VA Loan Closing Costs

On a VA purchase loan, closing costs range from 2% to 5% of the total loan amount. For example, on a $300,000 mortgage, you may pay $6,000 to $15,000 in total closing costs.

According to the Consumer Financial Protection Bureau the average closing costs for a VA loan were $8,391 in 2021.

With a VA loan, the buyer pays most closing costs. However, sellers may cover some fees like:

• Real estate commissions
• Transfer taxes
• Owner’s title insurance policy

Additionally, VA guidelines limit some costs lenders can charge, helping buyers save money.

Now let’s take a detailed look at the typical fees on a VA loan.

VA Loan Specific Fees

The VA sets guidelines on certain costs for VA loans. Here are the closing costs specific to VA mortgages:

VA Funding Fee

The VA funding fee is required on all VA loans. This one-time charge helps support the VA loan program. The fee can be financed into the loan or paid upfront.

On a first-time VA loan with no down payment, the funding fee is 2.3% of the loan amount. For subsequent use of a VA loan, the fee is 3.6%.

With a 5% down payment, the funding fee decreases to 1.65% for first use and 1.4% for repeat use. Veterans with a service-connected disability are exempt from the fee.

Example With a $300,000 VA loan and no down payment, the funding fee would be 2.3% x $300,000 = $6,900

VA Loan Origination Fee

This fee pays the lender for processing your VA loan. VA guidelines limit origination fees to 1% of the loan amount.

So on a $300,000 loan, the maximum origination fee is 1% x $300,000 = $3,000.

VA Appraisal Fee

An appraisal is required to confirm the value of the property you want to buy. VA appraisal fees typically range from $600 – $1,000 depending on the location.

Credit Report Fee

Your lender will pull your credit report to assess your creditworthiness. Expect to pay up to $50 per person for credit report fees.

Other Common Closing Costs

Here are some standard closing costs you’ll see on most mortgage loans:

Title Fees

Title insurance protects against losses from defects in the property title. There are two policies – lenders require title insurance to cover their interest while an owner’s policy is optional but recommended.

Together, expect to pay $300 – $1,500 for the title insurance policies.

Recording Fees

These mandatory government fees cover legally recording your deed, mortgage, and ownership documents. Recording fees are generally under $200.

Prepaid Interest

Because mortgages are paid in arrears, you pay interest charges between your closing date and when your first payment is due. Daily interest is a per diem charge.

For example, if you close June 14th but your first payment isn’t due until August 1st, you’ll pay interest for those 48 days at closing.

Property Taxes

You pay property taxes annually on your home and land. At closing, you’ll need to prepay taxes covering the portion left in the year after your purchase.

Expect to pay 1% – 2% of the home’s value per year in property taxes.

Homeowners Insurance

Lenders require hazard insurance to protect your home from damage. At closing, you’ll prepay the first year’s insurance premium.

Yearly premiums range from 0.3% – 1% of the home’s value, so budget $900 – $3,000 annually.

Discount Points

You can pay discount points upfront to reduce your interest rate. Each point costs 1% of the loan amount and lowers your rate by 0.25%.

Home Inspection

A home inspection identifies any issues with the property. Inspections aren’t required by VA loans but are highly recommended. Expect to pay $300 – $500.

HOA Fees

If the property is in a homeowners association, you may need to pay application fees, dues, and more at closing. HOA fees vary but plan for $100 – $700 upfront.

How Can I Reduce My VA Loan Closing Costs?

Here are 4 tips to lower your closing costs on a VA loan:

1. Opt for seller concessions

During negotiations, ask the seller to cover closing costs for you. Sellers can pay up to 4% of the purchase price in concessions with a VA loan. Concessions lower your out-of-pocket costs at closing.

2. Shop around with multiple lenders

Compare Loan Estimates from several lenders. Look for lower origination fees, discount points, and more to save money.

3. Seek lender credits

Ask your lender for a closing cost credit – they may be willing to offset your fees. Just be aware credits can raise your interest rate.

4. Request closing cost assistance

Look into down payment assistance programs that also cover closing costs through grants, forgivable loans or second mortgages.

When Will I Know My Final Closing Costs?

You’ll receive a Loan Estimate from lenders with estimated closing costs within 3 days of applying. This helps you compare offers.

It’s not until closing time that you get your final Closing Disclosure statement listing your actual total costs. Closing costs can change but generally won’t exceed 10% above the Loan Estimate.

Always communicate with your lender along the way so you know what to expect at closing.

Closing Thoughts on VA Loan Closing Costs

While closing costs add up fast, VA loans offer great benefits for eligible buyers. Planning ahead and shopping lenders can help you save money at closing.