VA Loan Closing Costs: What You’ll Pay, What’s Not Allowed, and How to Reduce Them

VA loans have closing costs — but they’re lower than what you’d pay on a conventional loan, and the VA strictly limits what lenders can charge you. Expect to pay 1-3% of your loan amount on a larger loan, or 3-5% on a smaller one. On a $350,000 home, that’s roughly $3,500 to $10,500. The biggest single fee is the VA funding fee, which goes directly back to the VA to keep the loan program running. And here’s what most veterans don’t realize until I tell them: you have multiple options for covering these costs — including having the seller pay them, rolling the funding fee into the loan, or using a lender credit. Nobody should let closing costs keep them from using their VA benefit.

What Closing Costs You’ll Pay on a VA Loan

Closing costs on a VA loan aren’t one lump sum — they’re a collection of fees from different parties involved in the transaction. Here’s what makes up the total:

The VA Funding Fee

This is the largest closing cost and the one unique to VA loans. The funding fee is a one-time payment to the Department of Veterans Affairs that helps offset the cost of the VA loan program to taxpayers. It’s what allows the VA to guarantee loans with no down payment and no PMI for future veterans.

The amount you pay depends on three factors: whether this is your first time using a VA loan, how much you’re putting down, and your service category.

National Guard and Reserve members pay slightly higher rates. Rates shown are as of current VA fee schedule — verify with your lender.

Who’s exempt: Veterans with a service-connected disability rating are exempt from the funding fee entirely. This can save thousands of dollars at closing. If you think you may qualify for a disability exemption, confirm your rating with the VA before closing.

Can you roll it into the loan? Yes. If you don’t want to pay the funding fee out of pocket, it can be added to your loan balance. This increases your monthly payment slightly, but it means you don’t need to come up with the cash at closing.

Lender Fees

Origination fee: The VA caps this at 1% of the loan amount. This covers the lender’s cost of processing and underwriting your loan. On a $350,000 loan, that’s a maximum of $3,500.

Discount points: Optional. You can pay discount points upfront to buy down your interest rate — each point costs 1% of the loan amount and typically reduces your rate by about 0.25%. Whether this makes sense depends on how long you plan to stay in the home. If you’re there for 5+ years, buying down the rate usually pays for itself.

Credit report fee: A small charge ($30-$50) for the lender to pull your credit.

Third-Party Fees

VA appraisal fee: $500-$800 depending on your state. Required on every VA purchase loan. Paid by the buyer.

Title search and title insurance: Protects against ownership disputes. Typically $500-$1,500 depending on your state and loan amount.

Survey and recording fees: Charged by the county to record the deed and mortgage. Usually a few hundred dollars.

Pest inspection (termite): Required in many states. Typically $50-$150.

Prepaid Items

These aren’t technically “fees” but they’re cash you need at closing:

Prepaid property taxes: A prorated portion of property taxes for the remainder of the tax period.

Prepaid homeowners insurance: Your first year’s premium (or several months’ worth if escrowed) is typically due at closing.

Prepaid interest: Interest on the loan from your closing date through the end of that month.

What Lenders Cannot Charge You (Unallowable Fees)

The VA specifically prohibits lenders from charging veterans certain fees that conventional loan borrowers typically pay. If you see any of these on your closing disclosure, push back — they’re not allowed:

Attorney fees charged by the lender. If the lender uses an attorney, that’s their cost, not yours.

Prepayment penalties. VA loans have no prepayment penalty. You can pay your loan off early or make extra payments at any time without fees.

Broker commissions from the borrower. If a mortgage broker is involved, the lender pays their fee — not you.

Real estate agent commissions. Agent commissions are the seller’s responsibility, not the buyer’s.

HUD/Settlement fees charged to the veteran. Certain settlement or escrow fees cannot be charged to the VA borrower.

Notary fees in most cases.

Excessive document preparation fees.

The VA’s unallowable fee list exists specifically to protect veterans from being overcharged at closing. An experienced VA lender will never put these on your closing disclosure — but if you’re working with someone less experienced, check your documents carefully.

Who Pays Closing Costs?

The buyer is responsible for closing costs in most transactions, but VA loans give you more flexibility than conventional loans in how these costs get covered.

Option 1: You Pay Them Out of Pocket

The most straightforward approach. You bring the closing costs as cash to the closing table. This keeps your loan amount lower and your monthly payment at its minimum.

Option 2: The Seller Pays Them

The VA allows the seller to pay all of the buyer’s closing costs — including the origination fee, credit report fee, appraisal, title insurance, and more. This is a negotiation point in your purchase contract. In a buyer’s market, many sellers agree to cover closing costs to close the deal. In a competitive seller’s market, asking for seller-paid closing costs can weaken your offer relative to conventional buyers.

Option 3: Seller Concessions (Up to 4%)

Beyond standard closing costs, VA guidelines allow the seller to contribute up to 4% of the home’s sale price toward costs that aren’t directly loan-related — prepaid taxes, prepaid insurance, and even paying off buyer debts in some cases. This 4% seller concession is separate from and in addition to standard closing costs the seller might cover.

Option 4: Roll the Funding Fee into the Loan

You can’t roll all closing costs into the loan, but you can roll in the funding fee specifically. Since the funding fee is often the largest single cost, this meaningfully reduces your cash needed at closing.

Option 5: Lender Credits

Some lenders offer to cover part or all of your closing costs in exchange for a slightly higher interest rate. This is sometimes marketed as a “no-closing-cost mortgage.” The costs don’t disappear — you pay them over the life of the loan through the higher rate. This can make sense if you plan to refinance or sell within a few years, since you’ll pay the higher rate for a shorter period. Over a full 30-year term, you’ll pay more total than if you’d covered the costs upfront.

Option 6: Down Payment Assistance Programs

Some state and local programs provide grants that can be applied toward closing costs. In Arizona, for example, the Home in 5 program offers up to a 4.5% grant toward down payment and closing costs in Maricopa County. Your lender can help you identify programs available in your area.

How to Estimate Your Closing Costs

A quick formula to ballpark your costs:

Loan amount × 2-3% gives you a reasonable estimate for most VA purchase transactions. On a $300,000 loan, expect roughly $6,000-$9,000 in total closing costs including the funding fee.

For a more precise estimate, ask your lender for a Loan Estimate (LE) — a standardized document that itemizes every fee. You’ll receive one within three business days of submitting a loan application. Compare Loan Estimates from multiple lenders to see who’s offering the best overall deal.

Your lender will also provide a Closing Disclosure (CD) at least three business days before your closing date with the final, exact numbers.

Frequently Asked Questions

Can I finance all my closing costs into the VA loan?

Only the VA funding fee can be rolled into the loan balance. Other closing costs must be paid at closing — either by you, the seller, or through lender credits.

Are closing costs higher on a VA loan than a conventional loan?

Generally no — they’re often lower. The VA caps the origination fee at 1% and prohibits several fees that conventional lenders routinely charge. And since VA loans require no down payment and no PMI, your total cash needed to close is typically less than a conventional purchase even with closing costs.

Do disabled veterans pay closing costs?

Disabled veterans with a service-connected disability rating are exempt from the VA funding fee, which is the largest closing cost. Other standard fees (appraisal, title, recording, prepaids) still apply, but the exemption can save thousands.

What’s the difference between closing costs and prepaids?

Closing costs are fees for services related to processing your loan (origination, appraisal, title work). Prepaids are advance payments for ongoing costs you’d pay anyway — property taxes, homeowners insurance, and interest. Both are due at closing, but prepaids aren’t “fees” in the traditional sense.

Can I negotiate closing costs?

Yes. You can negotiate with the seller to cover costs, shop different lenders for lower origination fees, and compare title company pricing. The Loan Estimate makes it easy to see where your money is going and where you have leverage.

Is a “no-closing-cost” VA loan a good deal?

It depends on your timeline. If you plan to stay in the home for many years, paying closing costs upfront and keeping a lower rate usually saves money over the long run. If you plan to sell or refinance within 3-5 years, a lender credit that covers your closing costs in exchange for a slightly higher rate can be the smarter move. Run the math with your lender both ways.

Let’s Talk About Your Closing Costs

I’m Jimmy Vercellino — a Marine Corps veteran of Operation Iraqi Freedom and a mortgage banker specializing in VA loans. I walk every one of my clients through their closing costs line by line so there are no surprises at the closing table. If you want to know exactly what you’ll pay, what the seller can cover, and how to minimize your out-of-pocket, let’s talk.

Schedule a free VA loan consultation or call me directly at (602) 908-5849.