🏠Buying a Home with a VA Loan? Don’t Forget About Closing Costs!đźŹ
Welcome to our comprehensive guide about closing costs with VA loans! As a prospective homebuyer, you might be aware of the benefits of VA loans, but you might not be familiar with the associated costs. Closing costs are fees that are charged at the time of closing, and they can add up quickly, depending on the type of loan you’re getting and where you’re buying.
In this article, we’ll cover everything you need to know about closing costs with VA loans. From what they are and how they work to how much you can expect to pay and ways you might be able to save money. So, let’s dive in!
🤔What Are Closing Costs, Anyway?🤔
Closing costs are fees associated with closing a real estate transaction. This includes costs for services like appraisals, inspections, title searches, and insurance. The specific costs you’ll encounter can depend on the type of home you’re buying, where you’re buying it, and even the lender you’re using.
As a VA loan borrower, you’ll be responsible for paying closing costs, just like anyone else buying a home. However, as we’ll discuss below, there are some unique aspects of VA loans that might affect how much you pay and who pays for what.
đź’°How Much Do Closing Costs Typically Cost?đź’°
Unfortunately, there’s no one-size-fits-all answer to this question. Closing costs can vary widely depending on a variety of factors. However, according to a recent survey by Bankrate, the average closing costs for a $200,000 home loan in 2020 were about $5,749.
That being said, this is just an average, and your costs could be significantly higher or lower depending on your situation. Some factors that can influence your closing costs include:
Cost |
Average Cost |
Who Pays? |
Loan Origination Fee |
$1,040 |
Borrower |
Appraisal Fee |
$500 |
Borrower |
Credit Report Fee |
$30 |
Borrower |
Survey Fee |
$400 |
Borrower |
Processing Fee |
$600 |
Lender |
Underwriting Fee |
$800 |
Lender |
Closing or Escrow Fee |
$500 |
Seller or negotiated between buyer and seller |
Tax Service Fee |
$80 |
Lender |
Wire Transfer Fee |
$50 |
Borrower |
Tax-Related Service |
$80 |
Lender |
Recording Fees |
$125 |
Borrower |
Title Insurance |
$1,000 |
Borrower |
Homeowners Insurance |
$1,000 |
Borrower |
🙋‍♀️🙋‍♂️Who Pays for Closing Costs with a VA Loan?🙋‍♀️🙋‍♂️
Typically, the borrower is responsible for paying closing costs with a VA loan. However, as a VA borrower, you might be able to negotiate with the seller to pay for some or all of your closing costs. This is known as a “seller concession” or “seller credit.”
There are some limits on seller concessions with VA loans, though. The Department of Veterans Affairs mandates that the seller can only pay up to a certain percentage of the loan amount in concessions. The exact amount varies depending on the size of the loan and other factors, so be sure to talk with your lender or real estate agent about what’s allowed.
🤔Can You Roll Closing Costs into Your VA Loan?🤔
Another unique feature of VA loans is that you might be able to roll some or all of your closing costs into your loan amount. This is called a “VA streamline refinance” or “IRRRL.” Essentially, you’re taking out a new loan to pay off your existing VA loan and including the closing costs in the new loan amount.
The benefit of this is that you can avoid paying closing costs out-of-pocket at closing, which can be a significant relief for many borrowers. However, it’s important to note that by rolling your closing costs into your loan, you’re increasing the overall amount you’ll owe and potentially increasing your monthly payment. So, be sure to weigh the pros and cons of this option carefully.
🤑How to Save Money on Closing Costs with a VA Loan🤑
Closing costs can be a significant expense for VA borrowers, but there are some ways you might be able to save money. Here are a few tips:
1. Shop Around for Lenders
Not all lenders charge the same fees for VA loans, so be sure to shop around and compare rates and fees from different lenders. You might be able to find one that offers lower fees than others.
2. Negotiate with the Seller
As we mentioned earlier, you might be able to negotiate with the seller to pay for some or all of your closing costs. This can help reduce your out-of-pocket expenses at closing.
3. Consider a “No-Closing Cost” Loan
Some lenders offer “no-closing cost” VA loans, which means they’re absorbing some or all of the closing costs themselves. However, keep in mind that this might come with a higher interest rate or other trade-offs.
4. Check for Discounts
Some lenders offer discounts on closing costs for military personnel, veterans, and their families. Be sure to ask if you qualify for any of these discounts.
5. Ask for a Closing Cost Estimate Up Front
Before you commit to a lender or a loan, be sure to ask for a detailed estimate of your closing costs. This can help you avoid any surprises at closing and give you a chance to compare costs between lenders.
🤷‍♀️Frequently Asked Questions🤷‍♂️
🤔What’s the Difference Between a “VA Funding Fee” and “Closing Costs?”
The VA funding fee is a one-time fee that’s required for most VA loans. It’s a percentage of the loan amount and helps the VA cover the cost of administering the loan program. Closing costs, on the other hand, are separate fees that are charged by various parties involved in the homebuying process.
🤔Do You Have to Pay the VA Funding Fee Up Front?
In most cases, yes. The VA funding fee is typically due at closing, along with your other closing costs. However, some borrowers might be able to roll the funding fee into their loan amount.
🤔Can You Get a Refund on Your VA Funding Fee if You Refinance?
Yes, in some cases. If you refinance your VA loan with another VA loan, you might be eligible for a partial refund of your initial funding fee.
🤔Can the Seller Pay for My VA Funding Fee?
No, the VA funding fee is the borrower’s responsibility. However, as we mentioned earlier, the seller might be able to pay for some or all of your closing costs, which can help offset your expenses.
🤔What Happens if the Seller Refuses to Pay Closing Costs?
If the seller is unwilling to pay for any of your closing costs, you’ll be responsible for paying them yourself. However, you might be able to negotiate with your lender to roll some or all of these costs into your loan amount.
🤔Can You Avoid Paying VA Loan Closing Costs Altogether?
It’s unlikely. Closing costs are a standard part of the homebuying process, and you’ll be responsible for paying them in most cases. However, as we mentioned above, there are some ways you might be able to reduce your costs or roll them into your loan.
🤔What Happens if You Can’t Afford Your Closing Costs?
If you can’t afford to pay your closing costs out-of-pocket, you might be able to roll them into your loan or negotiate with the seller to pay for them. However, keep in mind that by doing so, you’re increasing the amount you owe or potentially increasing your monthly payment.
🤔Are There Any Tax Benefits for Paying Closing Costs with a VA Loan?
No, there are no specific tax benefits for paying closing costs with a VA loan. However, you might be able to deduct some of the expenses associated with buying a home, such as property taxes and mortgage interest, on your federal income tax return.
🤔Can You Get a VA Loan with Bad Credit?
In some cases, yes. VA loans are known for their lenient credit requirements, and you might be able to qualify even if you have a lower credit score. However, keep in mind that having bad credit could affect your interest rate and other loan terms.
🤔Can You Pay Closing Costs with a Credit Card?
It depends on the lender. Some lenders might allow you to pay some or all of your closing costs with a credit card, while others might not. However, keep in mind that there might be fees associated with using a credit card, and you’ll need to make sure you can pay off the balance on time to avoid interest charges.
🤔Can You Roll Your Homeowners Insurance into Your VA Loan?
Yes, in some cases. You might be able to include your homeowners insurance premiums in your monthly mortgage payment, which can help simplify your finances. However, keep in mind that this will increase your monthly payment and potentially the overall amount you owe.
🤔Can You Refinance a VA Loan to Get a Lower Interest Rate?
Yes, it’s possible to refinance your VA loan to get a lower interest rate. This is known as a “VA streamline refinance” or “IRRRL.” Keep in mind, though, that refinancing can come with its own closing costs and fees, so be sure to weigh the pros and cons carefully.
🤔Can You Use a VA Loan to Buy a Second Home?
Yes, in some cases. However, you’ll typically need to use your VA loan entitlement to buy your primary residence before you can take out a second VA loan.
🤔Can You Use a VA Loan to Buy a Fixer-Upper?
Yes, in some cases. If you’re buying a home that needs some repairs or renovations, you might be able to include the cost of those repairs in your VA loan. This is known as a “VA renovation loan.” However, keep in mind that there are certain restrictions and requirements for these types of loans.
đź“ťConclusion
Closing costs can be a confusing and frustrating part of the homebuying process, but with the right knowledge and preparation, you can minimize your expenses and make the most of your VA loan benefits. By shopping around for lenders, negotiating with the seller, and exploring your financing options, you can save money and feel more confident about your decision to buy a home.
If you have any questions about closing costs with VA loans or any other aspect of the homebuying process, don’t hesitate to reach out to a qualified real estate professional or lender. They can help guide you through the process and ensure you’re making the best decisions for your situation.
đź”’Closing and Disclaimer
We hope you found this guide helpful and informative. Keep in mind that the information provided here is for educational purposes only and is not intended to be legal or financial advice. Your specific circumstances might affect your closing costs and other expenses, so be sure to consult with a professional before making any decisions.
The table above provides averages and estimates. However, the exact costs you’ll incur vary based on several factors. Please speak to your real estate agent and lender for the most accurate information.
Finally, we wish you the best of luck with your homebuying journey and hope you find the perfect home for you and your family.