The most common questions from a buyer include: How much is my payment, what are my closing costs, what is the rate, and how much do I need to bring to closing. For military service men and women, Veterans, and surviving spouses, the questions are basically the same. As far as VA loan closing costs go, there are some differences compared to other loans. But, most costs are just like other mortgage loans. So, let’s…
- Explain the costs
- Dispel some myths
- Detail the requirements
- Provide closing cost strategies
Does a VA Loan Cover Closing Costs?
Let’s clear up the myths first. There are 3 common misconceptions we hear from buyers and real estate agents. First is that there are no closing costs on a VA loan. Next is that all closing costs are paid by VA. Finally, the seller is required to pay the buyer’s closing costs. None of these are true. VA loans are just like any other mortgage loan. For instance, there is an appraisal, closing attorney, title insurance, homeowners insurance, escrows, and other costs. Although, there are some specific VA loan closing costs which we explain in this article.
The buyer’s closing costs are the buyer’s closing costs and the seller is not required to pay them. Although, the seller is allowed to pay them and we discuss the requirements and strategies in detail in a moment.
VA Loan Closing Costs – VA Funding Fee
Like other government loans (FHA and USDA), VA loans have a funding fee, also known as a guarantee fee. The funding fee basically serves a few specific purposes. The Veterans Administration benefits by the fee covering administrative costs and losses resulting from foreclosures. Thus, U.S. taxpayer takes less of a hit. Additionally, a VA funding fee is a form of mortgage insurance. Rather than charging a monthly mortgage insurance premium for no money down, VA has the one-time funding fee.
Where FHA and USDA have a set fee, the VA funding fee is dependent on some variables.
- First or subsequent use
- Type of military service
- Down payment level
- VA disability
Depending on the combination of above items, the VA funding fee percentage may be 0, 1.25%, 1.5%, 2.15%, 2.4% or 3.3%. Fortunately for VA borrowers, this fee is financed on top of the base loan. Although a borrower or seller may pay this fee instead. If you are looking for a more in depth explanation, check our article “VA funding fee – what is it, how much is it, how do I pay it, and why is it charged?“. You will learn all you need to know about this VA loan fee.
VA Termite Inspection Requirements
When buying a home in an area where the probability of termite infestation is very heavy or moderate to heavy according to the Termite Infestation Probability Map, VA loans require a termite inspection of the home. Although, a termite inspection is not required on a VA interest rate reduction refinance loan. Furthermore, lenders will not allow a VA buyer to pay for a VA pest inspection on a purchase. These wood destroying pests create potentially huge structural issues to homes and VA recognizes this. So, what are these pest inspectors looking for? Basically, inspectors are looking for signs of active/previous infestation, signs of prior treatment, areas conducive to termites, moisture issues, and damage from moisture or termites. Want all the details about VA termite inspections? Check out our article, “VA termite inspection explained – Do not let these little bugs kill your VA purchase“.
VA termite inspection cost: Typically ranges from $50 – $100
What Is An Escrow Account?
Occasionally, VA buyers ask the question, “Can I include my property taxes and insurance in my monthly mortgage payment?”. Actually, VA lenders require escrows for taxes and insurance.
Although escrows for taxes are not closing costs, they do make up a portion of the
VA Well & Septic Inspection
Other Standard VA Loan Closing Costs
Inspection Related Third Party Costs
- Appraisal $400 – $500
- Home Inspection $350 – $500
- Termite Inspection $50 – $100
- Appraisal Final Inspection $75 – $150
- Well Inspection $50 – $300
- Septic Inspection $300 – $500
- Survey $350 – $750
- Elevation Certificate $300 – $500
- Foundation Certification $300 – $500
Processing Related Fees
- Credit Report $35 – $50
- Commitment/Application $500 – $1000
- Tax Service Fee $75 – $95
- Tax Transcripts $25 – $55
- Flood Certification $12 – $18
Settlement and Title Related Fees
The following are typical closing costs related to closing attorney, settlement or title company, insuring title, and any state or local taxes or fees. Basically, this section involves making sure that
- Attorney Fees $450 – $850
- Title Search $200 – $450
- Courier Fee $30 – $50
- Recording Fees $50 – $150
- State & County Tax Stamps – Depends on location
- Transfer Tax – Depends on location
- Lenders Title Insurance – Based on state & loan amount
- Owner’s Title Insurance – Based on state & price vs. loan amount