What are some of the VA home loan closing costs that we need to be aware of?

You might often hear that, “Hey, you can do 0% down on a VA loan.” No doubt about it, you certainly can, and a lot of our clients choose to do so.

But sometimes, we can get confused and say, hey, 0% down on the loan, which is what we can do as a lender – we can do 0% down on a VA loan. They get confused with that and bringing $0 to the table.

Now, yes, you can do 0% down on the loan.

However, there are still closing costs associated with closing a VA loan.

So, what are those closing costs?

Well, one of the major costs with the VA loan for closing is what’s called the VA funding fee.

We’ve got some other good videos on that, but the VA funding fee is simply a fee charged directly from the VA.

Doesn’t matter what lender you’re working with, the VA funding fee is going to be the same in your situation. And it depends on if you are eligible to use VA loan and if it’s your first, second, third use or if you also have VA disability compensation.

Now, what exactly does that mean?

If you’re using the VA loan for the first time, your VA funding fee is going to be 2.15% of the loan value.

Put 5% down, they’ll drop that to 1.5%.

Now, typically, this fee is also rolled into the loan.

It’s one closing cost that can be rolled into the loan, which again is where sometimes folks are like, “Hey, I thought I could roll closing costs into the loan.”

Yes, you can roll that VA funding fee into the loan, and that’s what a lot of folks choose to do.

But know that if you put some money down on a VA loan, you can drop that funding fee.

Now let’s say you have VA disability compensation, though, 10% or greater. In that case, we can get that funding fee waived.

The VA will issue a Certificate of Eligibility for you that just says you’re exempt from the funding fee – period.

So, it’s really big, once you get out, if you’re working on that VA disability compensation, to make sure that you let your lender know.

Let us know that that is what you have, and we’ll make sure we get that waived.

Now, other closing costs, there are other closing costs associated with just closing a home.

Across the country can vary slightly, but like you’ll hear the general rule of thumb closing cost, they can be 2 to 4% of the home value in closing.

I’d say it’s about right. We work all over the country and all states with closed loans. As a general rule, that’s pretty correct.

Now here’s the deal – where do those costs really come from?

You have your title fees.

So, the title office or your attorney office that’s closing out the loan might have some fees to do their process. Makes sense.

They’ve got to work to look back at the chain of title and make sure that we’re going to transfer the property properly, right?

And there is a cost to doing so. So, you have title fees.

You also have taxes and insurance.

So, there’s the property taxes themselves.

Generally, you’ve got to deal with some proration. Sometimes you get a credit from the seller, sometimes you might not, but you have those prorated taxes for just owning the home.

But then you also have your insurance.

Generally, we’ve got to have a year’s worth of insurance upfront or at least paid for that year’s policy upfront and get us notice for that. So that’s a good cost right up front, insurance.

And then there’s also just other taxes.

Some areas have transfer taxes, stamp taxes, mortgage deed taxes, which the title office will help run and make sure are aligned, but those can vary all across the board from zero in some areas of the country, to we’ve seen as high as 2% plus, which can be pretty wild.

So know that there are just some other costs to closing that loan.

And then as well for lender costs, there’s also some of those costs too.

And that could be underwriting fees, origination fees, and if you see none of those fees, just know that a lot of that gets built in somewhere else because there’s really three ways lenders can charge you.

And we work with our clients on all three.

As I like to say, it’s a three-way teeter-totter.

So hey, if you want to adjust one, that generally means one other kind of fee is going to change. The three major fees you get charged through your interest rate, you get charged through finance points, that’s essentially paying money upfront to have a lower rate, and then there’s just general closing costs.

That’s what you might see again as underwriting origination, other things.

Now, if you hear from someone that, “Oh, closing costs are junk fees,” or something like that, we know that if they’re zero, that a lender has to get paid somehow.

So, most likely it’s either in finance points or the interest rate or if you have a super low interest rate, you might end up with higher closing cost costs or finance points.

So, just know those are really the three ways that you can get charged in a mortgage.

And you’re going to see that also sometimes within your closing costs. But if you’re not paying any lender closing costs, then the major closing costs you’re going to see are title, taxes, and insurance that you’re going to see wrapped up on a closing statement that are all kind of part of those final closing costs that you need to bring at closing.

Now with the VA loan, it is possible still to come to the table with zero if you want to try to make it happen.

How does that work?

Sometimes folks will ask the seller to pay for buyer closing costs.

And in this scenario, that is where let’s say you offer $500,000 on a home and we know the closing costs are going to be, let’s say, 2%, right – rough range $10,000.

You can offer $500,000 and say, “Hey, seller, please give me a $10,000 credit towards my closing costs,” and then we would apply that towards your closing cost, effectively allowing you to potentially show up with zero at closing.

That is how folks say, “Hey, I got my home with zero money out of pocket on a VA loan.”

Well, no, we can’t roll in all the closing costs.

You can get seller concessions to help cover those costs, and we can generally go up to 4% on a VA loan.

And that can also be used, by the way, to help pay off some of your debts. We got a good video on that. The VA loan is the only one that allows a seller to essentially help pay off buyer debts to qualify for a loan. Very unique.

We’ve worked with it multiple times, and we got some other videos to check out on our channel as well there. But know that that’s possible.

So, sellers can offer you as a buyer to help pay for your closing costs.

That’s how some folks end up with truly $0 into a VA loan. It’s not that they’re doing just 0% down on the loan, it’s also that they’re getting the seller to help pay for some of their closing costs. That’s how they get there.

So hopefully, this helps give you a good idea of what some potential closing costs can be when utilizing a VA loan.

My name’s Evan Kaufman, your VA loan originator. Hope this helps you win a home with a VA loan.