Veterans Affairs (VA) loans don’t require down payments, but that doesn’t mean you can borrow without having to pay anything. One of the costs you’ll have to pay for a VA loan is closing costs. Here’s everything you need to know about VA closing costs.
What’s Included in VA Loan Closing Costs
Mortgage closing costs roll many fees into one. When it comes to VA loans, your closing costs can include:
- A loan origination fee
- A VA funding fee
- Loan discount points
- A VA appraisal fee
- Credit report fees
- Hazard insurance
- Real estate taxes
- State and local taxes
- Title insurance
- Recording fees
VA Funding Fee and Appraisal Fee
While VA closing costs include a range of fees similar to other loans, the VA funding fee is specific to VA home loans. It’s a fee that covers the possibility of the loan not getting repaid—ranging from 1.4% to 3.6%.
The amount of the funding fee will depend on two factors:
- The amount of your down payment
- Whether this is your first VA loan or not
VA loans also have their own appraisal fee that is set by region, called the VA appraisal fee. For instance, New York’s fee is $625 for a single family home or condominium, and North Carolina’s high demand counties have a fee of $800.
Can You Roll Closing Costs Into a VA Loan?
The VA funding fee and most other costs can be rolled into the loan. You can’t, however, roll your down payment into the loan. The down payment reduces the cost of the funding fee because it reduces the risk for the VA to lend the money directly to you and back the loan with a lender.
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Who Pays the Closing Costs on a VA Loan
Typically, the buyer and seller work out who pays the closing costs—depending on what’s agreed to by both parties during the home purchase negotiation.
However, these costs are paid by the seller regardless:
- Commission for real estate professionals
- Brokerage fee
- Buyer broker fee
- Termite report (unless you’re refinancing)
Who’s Exempt From Paying Closing Costs?
Not all VA loan requirements for closing costs apply to everyone. If you’re a veteran considering a VA loan, you might be exempt from paying the funding fee portion of closing costs if you are:
- Receiving VA compensation for service-connected disabilities
- Eligible to receive VA compensation for service-connected disability, but are receiving retirement or active-duty pay instead
- A surviving spouse of a Veteran who died during active duty (or from a service-connected disability) and you’re receiving Dependency and Indemnity Compensation (DIC)
- A service member with a proposed or memorandum rating saying you’re eligible to get compensation due to a pre-discharge claim (before the loan closing date)
- An active duty service member who can provide proof of earning a Purple Heart (before the loan closing date)
Tip: Veterans or service members awarded VA compensation for a service-connected disability should apply for a refund of their closing fees if they’re awarded VA compensation for a service-connected disability retroactively.
How to Reduce VA Closing Costs
You can reduce how much you spend on VA closing costs in a variety of ways, such as:
- Making a down payment to reduce the VA funding fee
- Applying to eliminate it, if you qualify
- Negotiating so that the seller pays most of the closing costs
- Purchasing discount points to reduce the interest rate on your loan
Keep in mind that every mortgage point costs 1% of your total home loan. When deciding whether to buy the discount points, compare other uses for that money. For instance, making a 10% down payment reduces the amount you pay for the VA funding fee. If you can’t afford a 10% down payment while buying points, it may not be worth buying them. Ask your lender to calculate your monthly mortgage payment with and without discount points. Then, you’ll know which option is best for you.
Related: Today’s VA Mortgage Rates
Compare VA Mortgage Lenders
VA loans are a tremendous benefit for Veterans, service members and their spouses when buying a home. But just like any home purchase, it’s always smart to compare VA loan options with different lenders to find the right loan for you.
