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Qualifying service members, veterans or surviving spouses turn to VA loans to help make buying a home less expensive and becoming a homeowner more affordable. With a VA loan in hand, borrowers can close on a new home without a substantial amount of money upfront.
One of the biggest benefits of a VA loan is that you don’t make a down payment – but you will pay closing costs on your VA loan.
To help you understand the unique features and protections of VA loans, we’ll walk you through their associated fees and closing costs.
What Are VA Loan Closing Costs?
VA loans provide qualifying veterans, active service members and surviving spouses with affordable mortgage options, thanks in large part to the loan not requiring a down payment, more affordable interest rates and no private mortgage insurance (PMI).
But just like other home loans, VA loans have closing costs. The fees are pretty similar across the board (think: recording fees, origination fees, property taxes, etc.) – but some fees are unique to VA loans.
In addition to your standard closing costs, borrowers also pay the VA funding fee.
The VA funding fee
The VA funding fee is a closing cost that is unique to VA loans. Unlike the other loan fees, the VA funding fee isn’t paid to lenders, real estate agents or third-party service providers. The fee is paid to the Department of Veterans Affairs (VA). This one-time fee helps the VA continue to fund the VA loan program.
How much the VA funding fee costs will depend on whether it’s your first VA home purchase and the size of your down payment. The larger your down payment, the smaller your VA funding fee will be.
With your first VA loan home purchase, you’ll pay the associated VA funding fee:
|Down Payment||VA Funding Fee|
|Less than 5%||2.3%|
|5% to 10%||1.65%|
|More than 10%||1.4%|
For every VA loan home purchase after that, you’ll pay the associated VA funding fee:
|Down Payment||VA Funding Fee|
|Less than 5%||3.6%|
|5% to 9%||1.65%|
|10% or more||1.4%|
VA appraisal fee
Appraisals are typically required for mortgage loans – including VA loans. But with VA loans, the property must be appraised by a VA-approved appraiser. With a VA appraisal, the appraiser must assess the home’s value and inspect the home to ensure it meets the VA’s property standards. Completing both tasks will take a lot of work – and time – making the VA appraisal process more time-consuming and more expensive. The VA appraisal fee will vary by location, but you can expect to pay anywhere between $525 and $1,100.
Your lender will select the VA appraiser, but you will pay the fee. And, by the way, the fee has gone up with the increased demand for VA appraisals.
Do VA Loans Affect How Much My Lender Can Charge for Closing Costs?
There are certain limitations set on lender closing costs on a VA mortgage. Some of the most commonly capped expenses include origination fees.
Limited origination fee
A VA lender cannot charge more than 1% of the total loan amount as the loan origination fee the fee covers the cost to process the loan). Most lenders typically charge around 1%, but setting a limit ensures you’ll never pay more than that.
The Department of Veterans Affairs has requirements about which closing costs home buyers can pay – and don’t pay. The closing costs the VA won’t allow lenders to make you pay are non-allowable fees. Some non-allowable fees include:
- Application fees: Your lender cannot charge you an application fee for a VA loan.
- Escrow fees: While you will pay escrow fees to a title or escrow company, a lender cannot charge what it costs to open an escrow account.
- Rate lock fees: Rate locks, which temporarily lock in mortgage interest rates, have fees lenders cannot charge you for taking advantage of the benefit.
- Real estate attorney fees: Attorneys typically charge fees for their work helping you close on a property, but with a VA loan, you don’t have to pay attorney fees.
- Real estate broker fees: You are not allowed to pay real estate broker fees.
- Real estate agent fees: Like a broker’s fees, the VA says you cannot pay real estate agent fees.
How Can I Calculate Closing Costs on a VA Loan?
VA loan closing costs include the VA funding fee, VA appraisal fee, mortgage lender origination fees and other fees that generally add up to about 3% – 6% of the total loan amount. The final amount you pay in closing costs will vary based on a few factors, including the size of your down payment, the type of home you’re buying and the specifics of the loan (think: buying or refinancing, first or second home, etc.).
Who Pays VA Loan Closing Costs?
When you get a conventional mortgage, closing costs get split between you and the seller. The same is true for VA loans.
You and the seller can negotiate and decide who will pay which closing costs, but with a VA loan, sellers can only pay up to 4% of closing costs.
When it comes to the VA funding fee, that money will come out of your pocket.
Can Closing Costs Be Included In a VA Loan?
You typically pay your closing costs the day you finalize the home purchase. While some VA closing costs must be paid before or at closing, you can fold the VA funding fee into the loan. In fact, it is the only closing cost you can wrap into your VA loan. Your monthly mortgage payments will be higher, but you won’t have a big upfront payment to worry about to purchase your home.
VA Loan Closing Costs: Mission Accomplished
The Department of Veterans Affairs is on a mission to serve the people who served this nation. One way they accomplish their mission is by helping qualified service members, veterans and surviving spouses secure affordable housing.It’s a benefit you should look into if you think you’re eligible. If you decide a VA loan isn’t right for you, your dream of homeownership shouldn’t end there. There are a variety of low- or no-money-down loans to help you buy a home.
U.S. Department of Veterans Affairs. “VA Home Loans.” Retrieved October 2022 from https://www.benefits.va.gov/homeloans/
U.S. Department of Veterans Affairs. “VA Funding Fee And Loan Closing Costs.” Retrieved October 2022 from https://www.va.gov/housing-assistance/home-loans/funding-fee-and-closing-costs/
U.S. Department of Veterans Affairs. “VA Appraisal Fee Schedules and Timeliness Requirements.” Retrieved October 2022 from https://www.benefits.va.gov/HOMELOANS/appraiser_fee_schedule.asp
U.S. Department of Veterans Affairs. “Fees and Timeliness Announcement.” Retrieved October 2022 from https://www.benefits.va.gov/homeloans/documents/docs/va_fee_timeliness.pdf
U.S. Department of Veterans Affairs. “Circular 26_10_01.” Retrieved October 2022 from https://www.benefits.va.gov/HOMELOANS/documents/circulars/26_10_1.pdf