The Department of Veterans Affairs (VA) offers home loans to members of the military, including active-duty service members, veterans, and surviving spouses. If you qualify, a VA loan can be a tempting alternative to traditional loans due to benefits like a 0% down payment option and no mortgage insurance requirement.
While these features can save you money on your new home, it’s important to note that VA loans also come with different funding fees than conventional home loans. Most of these fees are mandatory, although you may be able to roll some of them into the loan itself. We’ll review the different types of VA loan closing costs and how much you’ll need to budget for them.
- VA loans can allow eligible service members to save money when buying a home, because they have no down payment requirement and no mortgage insurance.
- Closing costs for VA loans are different from those of conventional loans.
- VA funding fees differ according to your down payment and how you plan to use the new home, although you may qualify to have this fee waived.
- Sellers can pay up to 4% of your mortgage balance toward closing costs.
How Much Are VA Loan Closing Costs?
All home loans charge closing costs, which are the minimum amount of funds required to buy a home. When you’re approved for a VA home loan, you’ll be subject to different closing costs than if you purchased a home using a conventional mortgage.
VA Funding Fee
The funding fee is a type of closing cost the VA charges when you’re approved for a VA loan. The amount you’ll pay depends on your down payment and whether you’ve had a VA loan before.
|Down payment||Funding fee amount|
|First-time VA borrowers||Less than 5%||2.3%|
|5% to 10%||1.65%|
|10% or more||1.4%|
|Repeated VA borrowers||Less than 5%||3.6%|
|5% to 10%||1.65%|
|10% or more||1.4%|
The funding fee may be waived for a variety of reasons, including:
- If you receive compensation from the VA for a service-related disability
- If you’re eligible to receive compensation from the VA but you instead receive retirement or active-duty pay
- If you’re a service member on active duty who has received a Purple Heart
- If you’re the spouse of a veteran who died or was totally disabled during their service, and you receive VA compensation
If you pay a funding fee then qualify for VA compensation for a service-related disability with an effective date preceding your home purchase, you may be eligible for a refund.
You can choose to pay the VA funding fee upfront at closing, or your lender can add the fee to your mortgage balance.
Let’s say that you’re buying your first home for $150,000 and won’t be putting any money down. If you qualify for the exemption, you won’t have to pay the funding fee. If you don’t, you can calculate your funding fee amount by multiplying $150,000 by 2.3%, which works out to $3,450.
Loan Origination Fee
An origination fee is the amount charged by a bank when it creates your loan. The VA limits the amount a bank can charge in origination fees to 1% of your loan balance. Your lender may charge this fee as a flat 1% or as an itemized list of smaller fees.
You may not roll the loan origination fee into your loan; you must pay it at closing.
To continue the example above, if you purchase a home for $150,000, the maximum loan origination fee you’ll pay is $1,500.
One of the requirements for a VA loan is that you have the home appraised to ensure that you, as a buyer, are not overpaying for it. The VA limits the fees you can be charged for a home appraisal, and while costs vary based on your location, you can expect to pay between $425 and $1,000 for a home appraisal on a single-family home.
Other Fees and Costs
Other closing costs you’ll need to budget for when purchasing a home include:
- Loan discount points: You can buy these points from your lender in exchange for a lower interest rate on your mortgage. Each point costs 1% of your mortgage amount.
- Credit report: Banks need to run your credit report before approving you for a loan, and they’ll often charge a fee.
- Title insurance: This insurance policy is provided by the title company once it has verified that the property you’re purchasing has no outstanding liens. The cost depends on your location and the price of your home and can range from several hundred to several thousand dollars.
- Recording fee: You’ll pay a fee of about $20 to $225 to record your deed with the county, depending on your location, home value, and deed length.
If you’re looking to spend as little money out of pocket as possible, you may want to ask for seller concessions when you make an offer on your new home. Essentially, you’re asking the seller to pay some of the closing costs, such as the funding fee, loan origination fee, appraisal fee, and more.
The VA caps the total seller concessions you can request at 4% of the home loan amount. The seller can only pay certain costs, such as the funding fee and origination fee, but not the cost of loan discount points.
For example, when you make an offer on a $150,000 home, you can ask the seller to pay a total of $6,000 toward your eligible closing costs. If you’re a first-time homebuyer putting no money down, your funding fee would be $3,450 and the origination fee would be a maximum of $1,500. Both of these fees could be covered by seller concessions.
Frequently Asked Questions (FAQs)
How do you figure out your closing costs on a VA loan?
When applying for a home loan, banks will send you a packet of loan disclosure documents that will include your estimated closing costs.
Are VA loans more challenging to close?
Although VA loans can have more requirements than conventional loans, they are no more difficult to close.
Are closing costs different for refinancing a VA loan?
They can be. All closing costs for an Interest Rate Reduction Refinance Loan (IRRRL), for example, can be rolled into your new loan.