VA Loan Closing Costs: Who Pays What

Written by Banks Editorial Team
4 min. read
Written by Banks Editorial Team
4 min. read

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Veterans and active military members fight to protect their country. The government offers several perks to military members to reward them for their service, including VA loans. While getting a VA loan has several advantages, some borrowers wonder who is responsible for closing costs. These costs can add thousands of dollars to your loan. Saving on costs can make a house feel more affordable and help you get out of your loan sooner. We will unveil the details surrounding VA loans, so you know who pays what.

Home Loans and Mortgage Refinancing

What is a VA Loan and How Does It Work?

A VA loan makes homeownership more accessible to veterans and active military members. Borrowers do not have to put any money down, and they won’t incur private mortgage insurance. In addition, these loans have competitive rates and generous credit score requirements. Lenders have varying requirements, but VA loans have lower credit score minimums than conventional home loans.

How Much on Average are VA Loan Closing Costs and Fees?

You can’t get out of closing costs. Several third parties charge fees for their services. These third-party entities bring more stability and confidence to the real estate market. Budgeting for closing costs can lead to a smoother transition to homeownership.

Veterans and active military members pay a VA funding fee after receiving the loan, with some exceptions. This exclusive funding fee helps the program maintain desirable perks such as no down payments or private mortgage insurance. These perks can save you thousands of dollars on your loan. 

A VA loan is the best of both worlds between a conventional mortgage and an FHA loan. It has low requirements like an FHA loan but competitive rates and no PMI like a traditional mortgage. While a conventional mortgage requires 20% equity to avoid or remove the PMI payments, you never have this expense on a VA loan, even with no money down. It’s no wonder borrowers like these loans, but you’ll have to pay the VA fee, a final number that depends on your down payment. 

If you use the VA program for the first time, you will get a more attractive funding fee. Here is the breakdown for first-time VA loan borrowers:

  • A down payment under 5% = 2.3% VA funding fee
  • A down payment between 5% and 10% = 1.65 VA funding fee
  • A down payment over 10% = 1.4% VA funding fee

The VA funding fee remains the same for future uses if your down payment exceeds 5%. However, if you make a down payment below 5%, the VA funding fee jumps from 2.3% to 3.6% of the loan’s principal. You can pay this fee at closing or have it tacked onto your loan.

You will also have conventional closing costs, such as the loan origination fee, taxes, and third-party expenses. Since total VA loan closing costs have several items, the final bill can vary. Most borrowers pay between 1.5-5% of a loan’s principal in closing costs.

Can You Roll Closing Costs into Your Loan?

Some potential home buyers get nervous about closing costs. They may not have enough money in the bank for anything beyond the down payment. Luckily, you don’t have to scrap funds at the last second to cover closing costs. Instead, you can roll closing costs into their loans. You will owe interest on these closing costs, but you can keep the money in the bank. Having extra money in the bank will help you cover emergency expenses and provide more stability. Rolling closing costs makes the difference for some families and lets them become homeowners sooner.

Home Loans and Mortgage Refinancing

Who Pays for Which Costs?

Loans have several closing costs. Knowing these costs in advance will help you avoid overpaying or facing complications during the closing process. Buyers and sellers have established responsibilities that apply to most loans. Some buyers ask for seller concessions to reduce their closing costs and speed up a deal. Some sellers will agree to incur some of your closing costs to get out of the property sooner. Knowing these responsibilities and your budget can help with negotiations.

Seller

The seller has fewer closing costs than the buyer that we have listed below.

  • Commissions: Real estate agents can facilitate relationships between buyers and sellers and move houses out of the market. Real estate agents will ask both parties for a commission after the property swaps hands. The seller usually pays commissions for both real estate agents.
  • Brokerage Fee: Brokerage firms facilitate transactions between two parties. They act as middlemen and will ask for a fee at the end of the transaction.
  • Buyer Broker Fee: The seller usually pays the buyer’s broker fee as well.
  • Termite Report: The VA loan program does not let borrowers pay for a termite inspection. The seller will incur these costs unless the borrower is refinancing instead of buying a home.

Buyer

The buyer typically pays the majority of the closing cost items. For example, you can expect the following expenses if you use a VA loan to purchase a home.

  • VA Funding Fee: This fee helps the VA loan program offer significant perks to veterans and active military members. Some exceptions can let you avoid this fee.
  • Loan Origination Fee: The lender sets a fee for administrative work and producing the loan.
  • Loan Discount Points: These discount points increase your upfront costs but lower the loan’s interest rate. Loan discount points are optional for people who want to trim their long-term costs.
  • Credit Balance or Judgments: Buyers often pay the credit balance and judgments. Some buyers ask for a seller concession for this expense. 
  • VA Appraisal Fee: The VA will send an appraiser to assess the property to ensure the buyer receives a fair price. The buyer will have to pay this fee as part of the closing costs.
  • Hazard Insurance and Real Estate Taxes: The buyer is usually responsible for the insurance policy and taxes. 
  • State and Local Taxes: These taxes vary by location. Check your state and local tax rates before closing a deal so you can prepare for the final bill.
  • Title Insurance: This insurance policy protects both parties from unknown property liens. You may discover a lien after the closing, and the buyer should cover this expense. Paying yourself ensures you are covered.
  • Recording Fee: You must record a deed and other documents to confirm the property transfer. You will have to pay a recording fee for this data to get saved and stored.

How to Get a VA Loan or Other Home Loan

A VA loan provides immense advantages for home buyers. There’s plenty to like about a loan with no down payment requirement, competitive interest rates, and favorable credit score minimums. The VA loan is only available to veterans and active military members. If you have never served in the military, you can still get financing for your dream home.

loanDepot has several home loans for prospective buyers looking for capital. You can use their free home loan calculator to discover how much you would have to pay each month. In addition, aspiring homeowners can modify the home price, loan term, interest rate, and down payment to assess how mortgage payments will affect their budget.

loanDepot has funded over $275 billion in consumer loans and would be happy to help you finance your new home. You can visit loanDepot’s website today to learn about their available home loan options with zero obligation.

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