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What are the Closing Costs For a VA Loan?
By Aly J. Yale MONEY RESEARCH COLLECTIVE
One of the biggest perks of buying a home with help from a VA loan is that you don’t need a down payment. While this can save you money upfront, it doesn’t mean your loan comes for free.
In addition to paying interest on the loan, VA borrowers also owe closing costs, though these work a little differently than on other mortgage programs such as conventional loans.
Are you considering a VA loan for your home purchase? Here’s what you need to know about VA loan closing costs.
Table of Contents
- What are closing costs on a VA loan?
- How much are the closing costs for a VA loan?
- Who pays closing costs on a VA loan?
- How are closing costs calculated?
- Can you avoid paying closing costs?
- When will you have to pay VA loan closing costs?
- VA loan closing cost FAQ
- Summary of our guide to VA loan closing costs
What’s included in the closing costs on a VA loan?
On any home loan, closing costs are the upfront fees you’ll owe to your lender when you sign your final paperwork. They typically cover expenses like applying for your loan, originating and underwriting the loan and performing a title search on the property.
There are also usually escrow costs, too, which go toward your future property taxes and home insurance premiums.
Finally, with VA loans, you’ll also have a VA funding fee, which ranges between 0.5% and 3.6% of your loan amount. The exact fee depends on the size of your down payment (if any), the loan type (refinance vs. purchase) and the number of times you’ve used the VA loan program.
How much are the closing costs on a VA loan?
The total closing costs you’ll pay for a VA mortgage loan depend largely on your lender and loan amount, but the VA does have some rules regarding what — and how much — you can be charged for.
For one, you can only be charged certain “itemized” fees. These include the following:
- VA appraisal fee
- Recording fee
- Credit report/credit score fee
- Prepaid escrow costs, like those for your property taxes and home insurance premiums
- Hazard insurance
- Flood zone determination fee
- Land survey
- Title search and title insurance
- VA funding fee
- Discount points, which allow you to reduce your interest rate
Beyond this, the lender can charge a flat fee of 1% of your total loan amount — no more. This fee is meant to encompass various lender-side expenses, like the application fee, loan origination fee, loan processing fee and fees for rate locks and attorney services.
When you apply for a VA home loan, your lender should give you a detailed loan estimate, which will break down all the closing costs and fees you’ll be expected to pay as a borrower. Generally speaking, VA loan closing costs tend to run between 3% and 5% of the total loan amount.
Who pays the closing costs on a VA loan?
With VA loans, some closing costs must be paid for by the seller, while others are the buyer’s responsibility. Here’s a look at how those break down:
Seller’s costs and concessions
According to the rules set out by the Department of Veterans Affairs, sellers must pay for the commissions of all involved real estate agents, as well as any brokerage fees, buyer-broker fees and termite reports.
Beyond this, you can also ask sellers to cover any other closing costs or even ask for “concessions.” These can include things like covering your discount points, prepaying your property taxes, including a stove or refrigerator in the purchase or paying your VA funding fee, among other options. In total, seller concessions can equal no more than 4% of the total loan amount.
Keep in mind, though: Concessions are optional, so you’ll need to negotiate them with your seller directly (usually through your agent). If the homeowner is particularly motivated to sell or they’re located in a buyer’s market, they may be willing to make these concessions in order to seal the deal.
Other closing costs
Anything that the seller isn’t required to pay or they don’t agree to as a concession is the responsibility of the homebuyer. Remember, concessions can equal a maximum of 4% of your loan amount, so anything beyond this, you’ll be responsible for as well.
How are VA loan closing costs calculated?
Some VA closing costs are flat fees, while others are a percentage of your loan amount. The VA funding fee — a cost unique to VA loans — is based on the size of your downpayment, the loan type and the number of times you’ve used the VA loan program.
Because of this variability, your exact closing costs will depend largely on the lender you choose and the purchase price of your home. When you apply for a loan, your VA lender will give you a detailed loan estimate that will show you the estimated closing costs and fees. You can use this to negotiate or compare the lender against other financial institutions to get the best deal.
Can you avoid paying VA loan closing costs?
While you can’t avoid paying VA loan closing costs entirely, you do have the option to finance your VA funding fee — meaning to roll it into your loan balance and pay it off over time. This will result in a higher mortgage payment and more interest costs in the long run, but it can be helpful if you’re short on upfront cash at closing.
Additionally, some veterans may be exempt from the VA funding fee. You may not have to pay a VA funding fee if you’re receiving or eligible for VA compensation based on a service-related disability, have received a Purple Heart or are the surviving spouse of a veteran who died in service or due to a service-related disability.
Finally, there are also closing cost assistance programs to explore. These offer loans (often forgivable ones) and sometimes grants that can help you cover some or even all of your closing costs. To see if any are available in your area, check with your state housing agency and local housing department.
When will you have to pay VA loan closing costs?
With a VA loan, you pay most closing costs upfront — on your closing date. The VA funding fee is the one exception, as mentioned earlier. This expense can be rolled into your loan balance and paid off over time via monthly payments. Unfortunately, no other fees or closing costs can be financed.
VA loan closing costs FAQs
Can you roll closing costs into a VA loan?
You can roll the VA funding fee into your loan balance, but you can't do the same with other closing fees. These will need to be paid on your closing date — either by you or by the seller, via concessions.
If you do finance your funding fee, be prepared to pay more in interest costs. For example, if you used your VA loan benefit for the first time, bought a house for $500,000 and made no down payment, you'd owe a 2.3% funding fee — or $11,500. That'd make your $500,000 loan a $511,500 one. At a 5% interest rate and 30-year term, you'd wind up paying almost $11,000 more in long-term interest.
Financing your funding fee will also mean a higher monthly mortgage payment. In the above scenario, you'd pay about $60 more per month by rolling your VA funding fee into your loan balance.
What percentage of closing costs can be included in a VA loan?
The VA limits a buyer's closing costs to a few itemized fees, including appraisal fees, recording fees, credit reporting fees, title search/title insurance, the VA funding fee and prepaid items, like property taxes and homeowners insurance. Beyond this, VA loan lenders can charge no more than 1% of the loan amount to cover origination, underwriting and processing.
You can also be charged for discount points, though these are optional. They typically cost 1% of the loan amount and reduce mortgage rates by around 0.25%.
What are the closing costs you're not required to pay?
According to VA rules, you can't be required to pay certain non-allowable fees — including agent commissions, brokerage fees, buyer-broker fees, prepayment penalties, attorney's fees and a termite-report charge. If you're building a home that requires an inspection from the Department of Housing and Urban Development, you also can't be charged inspection fees (the builder needs to cover those).
Summary of our guide to VA loan closing costs
If you’re an active duty military service member, a veteran or the surviving spouse of one, a VA loan can be a smart way to finance a new home. VA mortgages require no down payment, and while they do have closing costs, just like any other type of loan, there are limits to what you can pay.
Additionally, sellers are allowed to pay a large portion of closing costs, and you can also finance your VA funding fee — which lowers your upfront costs significantly.
Just remember: Financing your fee will mean a larger loan balance, a higher monthly payment and more interest costs throughout homeownership. If you’re not sure this is the right move, talk to your loan officer. They can help you run the numbers and better understand the long-term costs of such a decision.
Another resource is our rundown of tips on getting a VA loan.
