This is the VA Home Loan Closing Costs and fees Calculator guide for Veterans Benefits Administration users. You know, one of the great benefits of VA loans is that they don’t require a down payment. Normally, this can be a huge relief for veterans. However, it’s important to know that the veteran is still responsible for covering the closing costs associated with the loan.
These closing costs typically include various fees and expenses related to the loan process. The veteran has two options to handle these costs: they can pay them out-of-pocket, or they may be eligible to receive seller and/or lender credits to help cover these expenses.
The exact amount of VA loan closing costs can vary based on the purchase price of the home. On larger home purchases, the closing costs may average around 1% to 3% of the total loan amount. For less expensive homes, the closing costs may be slightly higher, ranging from 3% to 5% of the loan amount.
It’s essential for veterans to be aware of these costs and factor them into their budget when considering a VA loan. Exploring the options for covering the closing costs and understanding the percentage based on the home price can help veterans make well-informed decisions and make the most of the benefits that VA loans offer.
Methods to Avoid Paying Closing Costs from Your Pocket
One great thing about VA loans is that the seller is allowed to cover all of the veteran’s closing costs, up to 4% of the home price. This means you could potentially avoid paying anything out of pocket when buying a home.
A helpful tip: If you’re short on funds for closing costs, make sure to let your real estate agent know that you’re using a VA loan to purchase your home. Your agent might be able to negotiate with the seller to have them cover some or even all of your closing costs. It’s a handy way to ease the financial burden and make the home buying process smoother for you.
What are the VA Closing Cost Examples
closing costs for a VA loan can vary based on several factors, including the location and individual circumstances. It’s essential to keep in mind that the amounts and types of fees can differ significantly depending on where you are buying the home.
To get a more accurate estimate of closing costs for your specific situation, it’s best to speak with a loan professional. They can take into account your unique scenario and provide you with a better understanding of potential costs.
However, I can provide you with a general idea of some common closing costs associated with a VA loan. These may include loan origination fees, appraisal fees, title insurance, recording fees, and other third-party services. On average, VA loan closing costs could range from about 1% to 5% of the total loan amount.
Remember, the best way to get an accurate estimate is to discuss your situation with a loan professional who can guide you through the process and provide you with a more precise breakdown of potential costs.
In this post, you will see some definitions and rough estimates of closing costs for a VA loan. It’s important to note that fees and amounts can vary significantly depending on where you’re buying the home. Your specific scenario might be quite different. To get a more accurate estimate, it’s best to consult a loan professional who can assess your situation. However, the following will provide you with a general idea of potential costs.
VA Fees and Lender Fees
One of the great advantages of VA loans is that the VA imposes limits on the amount of fees that lenders can charge. This limitation is a significant benefit for those utilizing VA loans. By capping the fees, the VA aims to make the loan process more affordable and accessible for veterans, reducing the financial burden associated with obtaining a home loan. It’s one of the ways the VA supports service members and veterans in achieving their homeownership goals.
VA Loan Upfront Funding Fee
The fee is normally sent to the Veteran’s Administration to cover the expenses of the VA program. Typically, VA homebuyers choose to include this fee in their loan amount instead of paying it in cash at closing. This way, it doesn’t add to the veteran’s out-of-pocket expenses. For more in-depth details about the funding fee, you can check the VA funding fee page.
1% Origination Fee
When it comes to VA loans, the VA sets a limit on the lender’s compensation, which is 1% of the loan amount. This fee is designed to fully compensate the lender for their services. Here’s the good news – if the lender charges this 1% fee to the veteran, they may not be allowed to charge additional fees for things like processing and underwriting. So, it helps keep things fair and transparent for the veteran borrower.
VA Loan Discount Points
If you’re a veteran, you have the option to pay discount points, but there’s a catch – the payment must go directly towards lowering the interest rate. Unlike the origination fee, which compensates the lender, discount points are a way for you to essentially get a reduced interest rate on your loan. They serve a different purpose, and it’s important to understand the distinction between the two.
For more detailed information about origination fees and discount points, you can check out our blog post on Discount Points. It will give you a more comprehensive understanding of how these fees work and their impact on your VA loan.
More Helpful Guides
- Credit Score Check, Reports and Highest Range in Your Finance
- How Can Poor Credit Score Hurt My Social Security Benefits?
- Can you get Closed Account Removed from Credit Report?
- Can I Get a Car Loan with a Repossession on my Credit?
VA Loan Third-Party Fees
In a home buying transaction, companies other than the lender that play a role are referred to as third parties. Some examples of these companies include title and escrow companies, credit reporting agencies, and appraisers. The fees charged by these third-party companies are known as third-party fees. Here are some common third-party fees and their estimated amounts.
Appraisal – $500
When you’re applying for a VA loan, the lender will request an appraisal directly from the VA website. The VA will then assign an approved VA appraiser to determine the value of the home and ensure it meets the minimum property requirements for VA loans.
It’s important to note that if you’re using a VA streamline to refinance your home, an appraisal is not required, and you won’t need to pay this fee. If a lender is asking for an appraisal on a VA streamline refinance, it’s a good idea to shop around and consider other lenders who do not require this fee for a streamline refinance.
Title Insurance Policy/Title Report ($300 – $2500+)
The title fee can vary significantly because it depends on factors like the home’s purchase price, the loan amount, and the location.
For lower-priced homes, the title fee might be just a few hundred dollars, while for higher-priced homes, it can exceed $1,000. The title report and title insurance are crucial as they protect both the lender and the home’s owner in case someone claims ownership rights to the property and wins the case in court. In such a scenario, the title insurance company would compensate the lender and the homeowner for any losses incurred.
Generally, there are two types of title fees: the lender’s title policy, which safeguards the lender, and the owner’s policy, which protects the future owner. The payment responsibility for these policies may vary based on local customary practices. In some areas, the seller might cover the owner’s title policy, while the buyer pays for the lender’s policy. It’s essential to be aware of the local norms when it comes to these fees.
The cost of the owner’s title policy is typically higher than the lender’s title policy. In some situations, the buyer may be responsible for paying for both policies, effectively doubling the title fee. For example, if the lender’s title policy costs $450 and the owner’s title policy costs $650, the buyer would end up with a total fee of $1100 if they have to cover both policies.
What to do
To avoid any surprises during the closing process, make sure you have a clear understanding of who will be responsible for paying which fees. Ensuring that your purchase and sale contract explicitly defines the parties responsible for the title fees and other closing costs can help avoid any confusion or unexpected expenses later on. Being informed and prepared will make the home buying process much smoother and less stressful.
Recording Fee ($20 – $250)
The fee for recording is determined by the county or jurisdiction where the home is located. When we say “recording,” it means that the details of the sale or refinance become part of the public record. This way, the county knows important information about the property, such as who is responsible for paying taxes on it and which banks have loans on the home. It’s a necessary step to keep track of ownership and financial responsibilities related to the property.
Credit Report Fee ($35)
The credit report fee is charged by a credit reporting agency, and it’s necessary because the lender needs to assess your past credit history. The report typically includes three credit scores from major credit bureaus like Experian, Equifax, and TransUnion. The lender usually uses the middle score for qualification purposes.
If you’re unsure about whether your credit score qualifies you for a VA loan, don’t hesitate to reach out to us. We’re here to help and provide the information you need to determine your eligibility for a VA loan based on your credit score. Feel free to contact us here, and we’ll be happy to assist you.
Flood Certification ($20)
As part of the loan process, the lender will obtain a flood certification, also known as a “flood cert,” for the property. The purpose of this certification is to determine whether the property is located within a flood zone. It’s essential to know that the majority of properties are not in flood zones.
However, if the property you’re interested in does fall within a flood zone, you’ll be required to purchase flood insurance. This insurance coverage helps protect the property and its owners from potential damage caused by flooding. The cost of flood insurance is typically outlined in the “Prepaid Items” section of your loan documents.
Being aware of whether your property is in a flood zone and understanding the requirements for flood insurance is essential in ensuring that you’re adequately prepared and protected as a homeowner.
Survey Fee ($400)
In some cases, a company will conduct a survey of the property to determine the exact location of all physical property lines. This survey is done to ensure clarity about the boundaries of the property.
The need for such a survey varies depending on the location. In many areas of the country, it’s not a common requirement unless there are specific concerns like property line disputes or questions about boundaries. So, in most cases, a survey might not be necessary, but it can be helpful in resolving any potential issues related to the property lines.
Attorney Fees ($400+)
Attorneys can play a valuable role in the home buying process. They can assist in negotiating and interpreting the sales contract, which ensures that everything is clear and fair for both parties. Additionally, attorneys can help facilitate a smooth and timely closing.
However, it’s important to know that not every state requires the involvement of an attorney in real estate transactions. If you are in a state that mandates their presence, it’s wise to shop around and find an attorney who specializes in real estate matters and offers reasonable fees.
It’s essential to note that the VA has certain rules regarding the fees that veterans can pay to attorneys. Veterans are only permitted to pay attorneys for title-related work. This means that any other legal services provided by an attorney must be covered by the other party involved in the transaction.
- How to Buy a Home with Spouse, Family Member, Friend or Relative
- How To Get A Mortgage Loan: 7 Steps To Get Approved for first timers
- Perfection of Legal Mortgage in Law & Procedure for Getting Loan Property
- How Much is Mortgage Payments? Calculate using Interest rate, Taxes and Insurance [Online Calculator]
VA Loan Prepaid Items
Prepaid items are expenses that the buyer pays in advance during the home purchase process. When you’re closing the deal, the lender will typically require you to pay for insurance policies and taxes upfront.
The reason for this is that unpaid taxes and insurance can be risky for both you and the lender. If the taxes remain unpaid, the government could seize the home, and if there’s no insurance, the property might not be protected in case of a fire or other unforeseen events. Both scenarios are not ideal for the lender (as they want to protect their investment) and certainly not for you as the homeowner.
So, paying these prepaid items upfront ensures that you’re covered and that the lender’s interests are protected as well. It’s an essential part of the closing process to ensure a smooth and secure home buying experience for everyone involved.
Flood Insurance ($300 – $1000+)
If your home is in a flood zone, you’ll need to get flood insurance, which is an ongoing policy that you pay for every year. Unlike the standard homeowner’s insurance, flood insurance specifically covers damages from flooding.
When you’re closing on the home purchase, the lender will require you to pay the first-year premium for the flood insurance policy. Keep in mind that this could significantly add to the upfront cash requirement for the closing. The cost of the insurance is determined based on the value of the home being insured, so it can vary quite a bit.
So, if your property is in a flood zone, it’s essential to be prepared for this additional expense and have the necessary funds available when you close on the loan. This way, you can be sure you’re adequately covered and comply with the lender’s requirements. You can Check Today’s VA Loan Rates.
Homeowner’s insurance ($300 – $1000+)
Homeowner’s insurance is a standard policy that offers protection against various risks, such as fire or trees falling on the home. However, it’s important to note that it typically does not cover flooding, and earthquake-related damage may or may not be included depending on the specific policy.
The cost of homeowner’s insurance is based on the value of the home being insured. When you are closing on the home purchase, the full year’s premium for homeowner’s insurance will be due.
The reason the lender requires this prepayment is to ensure that any damage to the home will be promptly repaired, protecting their investment and your interests as the homeowner. The insurance policy is like any other; it renews every year, and you’ll need to pay the premium again annually.
As part of the mortgage payment, the lender often collects 1/12th of the yearly premium and pays the insurance company on your behalf yearly. This helps in managing the insurance costs over the course of the year, making it more convenient for you as the homeowner.
Escrow Deposit/Tax and Insurance Reserves ($300 – $2500+)
The fee for the escrow account, also known as the “escrow impound” or “prepaid escrow,” can vary significantly based on several factors:
- Taxes and Insurance: The amount of taxes and insurance on the home plays a significant role in determining the required funds for the escrow account.
- Closing Time: The time of year when the sale closes can affect the escrow account’s initial amount.
- Tax Collection Schedule: Different jurisdictions have various schedules for collecting property taxes, which can influence the escrow account’s reserve requirements.
The purpose of the escrow account is to ensure there are sufficient funds reserved to pay future taxes and insurance premiums when they become due. It’s like “priming the pump” in advance.
To get an estimate of the upfront cost for the escrow account, you’ll need to consult your loan professional after choosing the property and establishing an estimated closing date. They can provide you with a more accurate figure based on the specific details of your transaction.
Having the escrow account helps ensure that taxes and insurance are paid on time, providing you with peace of mind as a homeowner and protecting the lender’s interests.
- Mortgage Calculator for Easy Debt Payoff – How to Calculate Mortgage Loan
- Mortgage Calculator for Easy Debt Payoff – How to Calculate Mortgage Loan With Formula
- Key Documents Needed to Apply for Home Loan in Nigeria [Mortgage Application Guide]
VA Loan Fees Not Allowed to be Charged to the Veteran
Below are some of the fees that are not allowed to be charged, per VA loan guidelines.
You can pay for any other thing besides title work.
Closing Fee/Escrow Fee/Settlement Fee
When it comes to VA loans, the good news is that the veteran is not responsible for paying the escrow fee. This is a significant benefit as the escrow fee can vary greatly and sometimes be quite expensive.
But let me explain what the escrow company does, even though the veteran doesn’t have to pay for it. The escrow company plays a crucial role in the home buying process. They are responsible for collecting and distributing all the funds involved in the transaction.
This means they handle things like receiving the earnest money, wired amounts from banks, down payments from the buyer, and closing cost assistance from the seller. Once they have all the necessary funds, the escrow company distributes them to the appropriate parties, such as real estate agent commission checks, the seller’s current lender, and the seller themselves.
In addition to handling the money, the escrow company also ensures that all parties sign the final loan and sale documents. And once everything is squared away, the escrow company takes care of sending the necessary documents to the county or jurisdiction to officially record the sale.
Even though the veteran doesn’t have to pay for the escrow fee, it’s good to understand the important role the escrow company plays in ensuring a smooth and successful home buying process.
Closing Protection Letter (CPL) Fee
The CPL (Closing Protection Letter) fee is sometimes included in the overall escrow fee, but it can also be charged separately. The CPL is a letter that holds the title company accountable in case there are any issues with how the escrow handles the loan proceeds.
Essentially, the CPL provides an additional layer of protection for the parties involved in the transaction, such as the lender and the buyer. It ensures that the title company takes responsibility if there are any errors or mishandling of funds during the escrow process.
While the CPL fee might not always be explicitly mentioned, it’s an important part of the overall escrow process, providing peace of mind and added protection for all parties in the home buying transaction.
Document Preparation Fee
The fee charged by escrow for preparing final loan documents.
Underwriting Fee/Processing Fee
Fees charged by the lender for processing and underwriting the loan.
Fees charged by the lender to lock the interest rate.
Lock In A Low VA Home Loan Interest Rate.
Similar Guides for Mortgage Application
- Legal Industry Adopts Cloud Computing for Solicitors & Law Firms
- Credit Facilities And Loans: The Differences And Characteristics
- How to Remove My Ex Name from Joint Mortgage Home Loan
- Adjustable-Rate Mortgage Loan: What is an ARM and How It Works
- What is Credit Facility? How it Works for Personal & Business Loan
- Important Mortgage Loan Documents to Acquire, When Applying For a Mortgage Loan
Courier Fee/Postage Fees
in some situations, there are original documents that can’t be sent via email or fax, and they have to be hand-carried or sent through an overnight service. When this happens, the escrow company might charge a courier fee to cover the cost of these services.
The veteran is not allowed to pay for these fees. They must be covered by the lender instead. So, even though there might be additional expenses involved for these special delivery services, the veteran doesn’t have to worry about paying for them. The lender takes care of it to ensure a smooth and efficient transaction process.
Let’s talk about another type of fee charged by the escrow company. Sometimes, the escrow company may need to send a notary to the borrower for a signing appointment at a location other than their office. In such cases, the escrow company might charge a fee for this service.
This fee covers the cost of having a notary travel to a different location to facilitate the signing of important documents. It ensures that the borrower can conveniently complete the necessary paperwork without having to visit the escrow company’s office.
It’s important to be aware of this fee and discuss it with the escrow company during the home buying process. Understanding the fees involved will help you plan and budget accordingly for a smooth and efficient closing experience.
VA Home Loan Application Fee
When you’re considering a VA home loan, it’s essential to know that the lender won’t charge you an application fee upfront. Unlike some other loans, on VA loans, there’s no need to worry about paying any application fee before you even submit your application.
The VA-approved lenders adhere to this rule, ensuring that veterans are not burdened with unnecessary fees during the application process. So, you can confidently move forward with your VA loan application, knowing that you won’t be charged any upfront application fee.
Tax Service Fee
This fee is paid to the mortgage company to ensure they pay the real estate taxes. The fee is known as the “escrow account” or “impound account” fee. It’s paid to the mortgage company, and its purpose is to ensure that the mortgage company takes care of paying your real estate taxes on time.
Mortgage Broker Fee
Mortgage brokers might sometimes charge a fee when they broker a loan out to the lender.
The list of allowable and non-allowable fees mentioned above is not exhaustive, and there might be other fees involved in your purchase transaction that are not listed here. If you come across any additional charges and are unsure whether they are allowable on VA loans, it’s a good idea to get in touch with your VA lender for clarification.
For more information about closing costs or to seek guidance on your loan options, you can call (866) 240-3742 to speak with a mortgage professional who can provide valuable advice. Alternatively, we can connect you to a knowledgeable loan officer who can address your queries and assist you throughout the process.
How to obtain more information about VA home loans?
Normally, to determine if you qualify for a home purchase with a VA loan, the easiest and most efficient approach is to request a free rate quote. You can either call (866) 240-3742 or fill out our online form to get started. It’s a straightforward process that will provide you with the necessary information to assess your eligibility for a VA loan and help you move forward with your home buying plans.
The list below are some links to additional information
- VA Loan Checklist
- Income Guidelines
- VA Eligibility
- VA Jumbo Loans
- VA Loan Benefits
- VA Funding Fee
- First Time Mortgage Buyer: Preparation and Tips on Home Purchasing
- Home Loan: How to Apply Mortgage, Benefits and Documents Required
- Home Loan Interest Rates: How to Calculate Effectively and Types
- Refinancing Your Home: Pros and Con of Mortgage Refinancing
- Pros and Con of Joint Mortgage Loan for Family Home
- VA Handbook PDF format