As a veteran or active duty military member, VA loans are often the solution to your concerns about being able to afford to buy a home.
While you can look forward to enjoying benefits such as no down payment and more lenient credit standards with these government-backed loans, you must still be prepared to pay for the VA loan closing costs.
In most cases this expense is the buyer’s responsibility, but you can consider these options to make paying this part of your home purchase easier to fit into your budget.
How Closing Costs Differ With VA Loans
Closing costs is a bit of a catchall term that is used to describe a wide range of fees and expenses that can be charged during the purchase of a loan.
For example, discount points may be purchased to lower the interest rate on the loan. You may also be required to pay fees for an appraisal, pest inspection and a credit report by the lender. A portion of the property taxes and homeowners insurance may also be required at closing.
While watching these fees add up is unsettling if you are not prepared, the VA does have guidelines in place to ensure that they are fair. For instance, the lenders can only charge one percent of the loan for the origination fee.
Roll the Funding Fee Into the Loan
One of the most important VA loan closing costs to know about is the funding fee. This fee is paid to the Department of Veterans Affairs, and it is meant to help offset the costs that the government incurs when loans default.
The amount that you will need to pay is determined by several factors that include your military service status, the amount you are putting down on the home and whether or not this is your first loan.
If you are unable to pay the funding fee outright, it can be rolled into your loan. Just keep in mind that this will influence the monthly mortgage loan payments.
Negotiate for the Seller to Pay the Closing Costs
The VA also allows for the seller to pay all of the closing costs that are associated with the loan.
This includes the
- origination fee
- credit report
- appraisal fee
- title insurance
If the seller is not interested in paying all of the closing costs, it is possible to negotiate for them to cover at least a portion of them.
Request Seller Concessions
Under the VA loan guidelines, you are also able to negotiate for the seller to pay up to 4 percent of any closing costs that are unrelated to the loan as well as other expenses.
For instance, the seller could pay the prepaid insurance and taxes cost. You can also ask the seller to give credits for items that you ask them to leave with the home such as a distinctive piece of furniture or special lawn equipment.
Although this pay not pay the closing cost directly, it can help to offset any funds that you must use from your personal account.
Closing on a home is a complicated process that does require financial payments on your part. As you get ready to start looking for a home, be sure to begin with the end in mind.
Be sure to let our loan officers know about any questions that you have about the closing costs on VA homes so that you can be prepared for the last steps in your home buying journey.