How Much Do You Have to Pay for VA Loan Closing Costs?
VA-guaranteed home purchase loans allow eligible borrowers to purchase home properties without down payment. As long as you meet the eligibility criteria, you can take advantage of this loan program to obtain 100% financing, along with a variety of benefits which may be unavailable in conventional mortgage loans.
Compared with conventional loans, VA loans offer competitive interest rates and put less stringent requirements on debt-to-income ratio. More importantly, if you are turning to a VA loan for financing, you can save bucks on the closing costs.
We know that in traditional loans, the closing fees may cost us quite a lot. However, as for the VA loans, the property sellers are allowed to pay up to 6% of the closing costs and concessions on your behalf. Besides, there are many fees that you do not have to pay, with the purpose to lower the overall cost of obtaining the loan. You just need to pay a Reasonable and Customary amount towards the loan closing.
To help you gain an up-close look at VA loan closing costs, I am here to list the itemized fees and charges associated with closing a VA loan.
• Appraisal and Compliance Inspection
When you apply for a VA loan, VA will arrange the home value appraisal or compliance inspection on the property you are going to purchase. The VA appraiser will estimate the property’s current market value based on its age, condition, location, etc.
Furthermore, the compliance inspector may also visit the property, gathering all necessary information to determine if the property is in compliance.
The appraisal or inspection, to some extent, can ensure you the peace of mind about the property you are considering, letting you know in depth about the property’s conditions.
However, the VA appraiser or inspector may be unable to spot all the problems of the property. Meanwhile, you are not satisfied with the appraised value, you can pay for a second appraisal to re-estimate the property’s value. If a second appraisal or inspection is requested by the lender or the property seller, you do not need to pay for it.
• Recording Fee
Recording fee is required on every mortgage, including the VA loans. It is not paid to your lender or property seller, but to the county that records home sale transactions. This fee is not tax deductible.
Compared with other fees involved in the VA loan closing, recording fees and recording taxes are relatively small, but they are likely to vary from county to county.
• Credit Report Fee
When you are applying for a VA loan, the lender will verify your credit report to see if you have a good credit history, which helps determine if you would be a risk.
The credit report will include a detailed record of your credit history, including your identity, current credit levels and public record information. Your credit score will vary depending on the credit bureau you choose – Equifax, Experian, or TransUnion.
The typical cost for a one-time credit report, including the credit score, is $15 to $16 from one of the three major credit bureaus. If you request the reports and scores from all three national credit bureaus, the cost will be $30 to $40.
Before you submit your credit report to the VA lender, remember to check the details on your report to make sure of its accuracy.
• Prepaid Items
Before you obtain the VA loan, you have to prepay a portion of the property’s taxes, insurance, assessments, initial escrow deposits, and other similar items chargeable for the current year. This amount of money will contribute to your VA closing costs and need to be paid upon the closing.
Based on the date of closing, the value of the property you want to purchase, and the loan amount, the prepaid items you have to pay could be a significant amount. To get prepaid with the money for these prepaid items, you can request your lender or real estate agent to help you roughly calculate the costs in advance.
• Discount Points
In conventional loans, discount points are a good way to lower interest rate. Then it is the same case to VA loans. If you want to secure a lower interest rate on your VA loan, you can choose to buy higher discount points which, however, will increase your closing costs.
Please note that it is the lender, not the Veterans Affairs, that sets the discount points. You can work with the lender to determine the amount of discount points that best fits you. Different from VA refinancing loans, discount points can not be financed into VA home purchase loans.
Although discount points can help lower your VA loan interest rate, buying discount points is just an option – it is not necessarily for all VA loan borrowers. The best way to see if you should buy discount points is to calculate how much you can save over the term of your VA loan if you purchase discount points.
• Hazard Insurance
Upon the closing of your VA loan, you need to pay the first year’s premiums on hazard insurance, which provides the coverage for specific natural hazards, such as fire, earthquakes, vandalism, or wind.
If the property is located in the area which is more likely to suffer from flood hazard, you will be required to purchase flood insurance. You need to pay the charges on flood zone determination if it is made by the third party.
• Title Examination and Title Insurance
Title examination refers to the research of all public records to see if any documentation has been recorded in associated with the property you purchase. It is used to make sure that the property is marketable and you can gain the title on it correctly.
The title examination is usually conducted by a professional third party. Typically, the examination fees fall on you, but sometimes the lender may cover the cost if the VA loan is being taken out on the property.
Title insurance will protect you against losses if someone claims the ownership on the property you purchase. Many VA loan lenders will require title insurance and the coverage normally comes in two parts, one for you and the other for the lender.
• VA Funding Fee
VA funding fee is required by law. For VA home purchase loans closed on or after November 22, 2011, with less than 5% down payment, the funding fee is 2.15% for veterans and active service members while 2.40% for reservists or National Guard members.
If your down payment is from 5% to 9.99%, the funding fee will be 1.5% (or 1.75% for reservists or National Guard members). For VA loans with 10% down payment or more, the funding fee is 1.25% for veterans and active service members and 1.50% for reservists and national guards.
In addition to what I list above, you may be charged with additional fees for your VA loan closing, which must be specifically authorized by the Veterans Affairs. Without the approval of VA, your lender or property seller CAN NOT charge you extra fees, including:
• Administrative fees
• Loan settlement fees
• Documentation preparation fees
• Attorney services fee other than for title work
• Rate lock-in fees
• Escrow fees
• Underwriting fees
• Brokers fees or tax service fees
• Loan application fees
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