VA loans are government-backed loans that can be used by members of America's service men and women. VA loans come with their own rules and regulations which means VA closing costs are different than conventional loans.
If you're a seller, you can't pay more than 4% of the home's purchase price on a VA loan. due to the seller concession rule.
The good news is, if you're a buyer, VA loans offer low or no money down options. You just have to make sure the appraised value is not higher than the home's purchase price.
If you're a buyer who's using a VA loan to buy a house, we recommend going with a good real estate agent who understands VA loans. Our friends at Clever Real Estate can help. Clever is a free service that can match you with agents who have extensive VA loan knowledge. And if you buy a home with Clever, you can get up to 0.5% cash back after closing in 41 states, just by using a Clever partner agent!
Who Pays VA Closing Costs?
VA closing costs can be broken down four basic types:
- Costs associated with obtaining a loan:
These include fees for things like a survey, if necessary, title fees, and underwriting costs.
- Prepaid financing costs (PFC):
PFC costs could include homeowners association dues, VA funding fees, and prorated taxes and homeowners insurance costs.
- Paid outside closing POC:
POC costs may include such things as a VA home appraisal, home inspections and the buyer’s credit report fees.
- Non-allowable fees:
The VA helps veterans by forbidding lenders from charging borrowers certain closing costs that other borrowers might have to pay. These fees change depending on whether or not the buyer’s lender is charging the buyer a loan origination fees. Some examples of these forbidden fees include broker, notary and lender document fees.
According to the VA’s quick guide to obtaining a loan, you can negotiate most costs. In other words, the VA does not have any rules that say the buyer or seller must pay for these costs. However, the seller cannot pay more than 4% of the home's purchase price in closing cost assistance.
- All closing costs must get paid at closing time.
- The VA funding fee is the only cost that can get rolled into the loan.
How Much Are VA Closing Costs?
Closing fees depend on a variety of factors, including the home’s value, service provider fees, local laws and regulations and neighborhood expenses like HOA fees.
When a buyer applies for a loan, they get a good faith estimate (GFE from their lender. This customized snapshot of home purchase costs provides a detailed estimate of all costs associated with the loan.
You can check out the VA's funding fee rate chart to see how much that fee amount will be.
How to Minimize VA Closing Costs
If you are buying a home, your best bet is to research your lender carefully and to rely on them to guide you through all the costs you’ll be responsible for. If the market is currently favoring buyers – you also have the option to negotiate on any allowable costs associated with your home purchase.
If you’re selling, your best bet is to first make sure you understand what fees you must pay – the ones that are non-negotiable. Once you understand what your obligations are, you can work to negotiate splitting remaining fees with the buyer. Just keep in mind, the state of the market will impact how much they are willing to bend.
Sellers can benefit from having a good low-commission agent. Traditional agents charge a 2.5-3% fee, but we think that's too high. That's why we recommend our friends at Clever. Clever can match you with top-performing, local agents who can help sell your house for just 1%! You'll save THOUSANDS in commission fees while selling your home for maximum value.
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