When using a VA loan to purchase a home, understanding the closing costs involved is crucial for budgeting and planning. VA loans offer several benefits, such as no down payment and no private mortgage insurance, but like any mortgage, there are closing costs to consider. Here’s what veterans need to know about closing costs on a VA loan.
What Are Closing Costs?
Closing costs are fees associated with the purchase of a home. These costs can be broken into permissible fees including a variety of fees charged by lenders and third parties related to the buying process, as well as origination charges that are limited to 1% of the loan amount.
Permissible Loan Closing Costs for VA Loans:
- Appraisal Fee: A VA appraisal is mandatory to ensure the property meets VA guidelines for value and safety. The cost varies by location but is usually a few hundred dollars.
- Recording Fees: Charged by your local recording office, these fees cover the cost of recording the deed, mortgage, and other paperwork.
- Credit Report Fee: Lenders may charge a fee for pulling your credit report.
- Prepaid Items: These include property taxes, homeowner’s insurance, and possibly homeowner’s association fees that need to be paid at closing.
- Survey Fee: If required by the lender.
- Title Examination and Insurance: This protects the buyer and lender in case there are problems with the title to the property.
- Flood Zone Determination: This is a charge for the life of the loan to ensure whether or not the home is located in a flood zone and may require flood insurance.
- Loan Origination Fee: Lenders can charge up to 1% of the loan amount as an origination fee. This fee compensates the lender for processing the loan.
Origination Charges If A 1% Origination Fee Not Charged:
- Lender’s appraisal or inspections
- Loan Closing or Settlement Fees
- Escrow Fees
- Notary Fees
- Processing Fees
- Document Preparation Fees
- Interest Rate Extension Fees
- Postage, Mailing, Express, Wire Transfer, and other such Administrative Fees
- Any other loan-related fees not listed in the Permissible Closing Cost list
VA Funding Fee
In addition to regular closing costs, VA loans also come with a VA funding fee, which helps fund the VA home loan program. This fee varies depending on several factors including the type of loan, the size of the down payment, and whether the borrower has used a VA loan before. The fee can be financed along with the mortgage or paid in cash at closing.
In conclusion, understanding VA loan closing costs is crucial for any prospective homebuyer utilizing this beneficial program. Join us next week as we delve into the specifics of who can cover these costs, providing clarity and insight to help you navigate the home buying process with confidence. Stay tuned for valuable information that can make a difference in your journey toward homeownership.
Jeff Wilson, President of Military and Veteran Lending | 615-293-2775 | [email protected]
