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VA Loans: Closing Cost Guide

VA Loans: Closing Cost Guide

VA Loan Closing Cost Guide

In this article:

Current or past members of the U.S. military can finance up to 100 percent of their home purchase with a VA loan that has no mortgage insurance or prepayment penalties. These loans – backed by the U.S. Department of Veteran’s Affairs and made by local mortgage lenders throughout the country – have specific rules for closing costs that veterans should be aware of before they talk to a lender.

Below is a list of the fees you can expect to see on a VA loan, as well as some critical notes for certain fees.

VA Funding Fee

This is a percentage of the loan amount that the VA assesses every borrower to fund the VA home loan program. The amount of the fee depends on your down payment amount, service type, and whether it’s your first or subsequent use of your VA loan benefit.

These VA funding fees can be financed into your loan. For example, if you were regular military personnel buying a $250,000 home with 100% financing, your funding fee would be 2.15% or $5,375. This amount would normally be due at closing, but to avoid paying this fee upfront, you can also add it to the $250,000 loan amount. Here’s how funding fees break down:

Regular Military

Down Payment Funding Fee Amount
for first time use)
Funding Fee Amount
(for subsequent use)
0% 2.15% 3.3%
5-10% 1.5% 1.5%
10% 1.25% 1.25%

Reserves and the National Guard

Down Payment Funding Fee Amount
for first time use)
Funding Fee Amount
(for subsequent use)
0% 2.4% 3.3%
5-10% 1.75% 1.75%
10% 1.5% 1.5%

 

 


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Loan Origination Fee and/or Line-Item Lender Fees

The rest of the closing fees can be a percentage of the loan amount (called a loan origination fee), individual line-item fees, or a combination of both. The VA is specific about which line item fees can be charged if a lender is or isn’t charging an origination fee.

The VA allows the following fees regardless of whether the lender is charging a 1% origination fee:

  • VA appraisal fee
  • Credit report
  • Recording fees, taxes and stamps
  • Prorated tax and insurance escrow
  • Hazard insurance – if it was not paid directly out of pocket by the veteran outside closing
  • Survey and plot plan
  • Title insurance, title search, and any fees required to prepare title work
  • Environmental protection lien endorsement
  • 1% origination fee
  • VA funding fee
  • Closing protection letter (CPL)
  • MERS fee
  • Well and septic inspection fees

*Upfront fees borrowers can pay to lower their rate. Like origination fees, they are expressed as a percentage of the loan amount

If the lender does charge the 1% origination fee, the VA does not allow the following fees. If, however, the 1% origination fee isn’t charged, the following fees can be charged as long as they don’t exceed 1% of the loan amount:

  • Lender’s appraisal**
  • Lender’s inspection
  • Settlement fee, escrow fee, closing fee
  • Document preparation fee
  • Underwriting fee
  • Processing fee
  • Application fee
  • Pest inspection fee
  • Attorney fees if for something other than title work
  • Assignment fee
  • Copying fee
  • E-mail fee
  • Notary fee
  • Commitment fee
  • Trustee fee
  • Mortgage broker fee
  • Tax service fee

** The veteran can only be charged for one appraisal unless the VA requires a second appraisal.


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How to Ask a Lender for Fee Disclosures

The lists above aren’t all inclusive, but include the bulk of what you’ll see on a VA loan.

All lenders are required by federal law to disclose these fees to you within three days of your application. The disclosures must be in a specific format so they will be easy to read and understand. If you’re shopping lenders, you’ll get the same forms from all lenders to compare:

  • Before August 1, 2015, the initial fee disclosures will be the Good Faith Estimate and Truth In Lending forms.
  • After August 1, 2015, the initial fee disclosure will be the Loan Estimate.

You can ask for these disclosures by name after you submit your application to a lender.

Because the fee structures of VA loans are technical and require clear explanation, you’ll want to find a lender who specializes in VA loans in your area.

The post VA Loans: Closing Cost Guide appeared first on Mortgage Learning Center.

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