Getting a loan comes with closing costs. But VA buyers are tapping into a benefit program, and that includes advantages when it comes to closing costs.
Here's a look at three essential facts about closing costs for active-duty and veteran service members looking to buy a home.
The VA limits what buyers can pay
If the option to buy with 0% down wasn't incentive enough for eligible buyers to use the VA loan program, this one certainly sweetens the pot.
The Department of Veterans Affairs has a list of "non-allowable" fees -- loan fees that the veteran or active-duty member isn't allowed to pay. That means these loan costs will need to be covered by the seller, the lender, or the real estate agent.
Those non-allowable costs and fees include:
- Pest inspections on purchase transactions ( in 41 states)
- Broker fees or real estate agent commissions
- Penalties for loan prepayment
- Non-title-related attorney fees
- Excessive recording fees
In addition, the VA limits what lenders can charge to cover their origination and administrative costs.
Sellers can contribute a lot
Sellers in a VA purchase transaction can cover all of a buyer's mortgage-related closing costs and contribute up to 4% as "concessions." Mortgage-related closing costs include things like origination fees, appraisal, title work, and more. Concessions can go toward a host of other expenses that often come with buying a home, from prepaid taxes and homeowners insurance to even paying off collections or judgments for the buyer.
Many VA buyers will come to the home-buying journey needing help with closing costs. But it's important to note that sellers aren't required to pay a dime toward a buyer's closing costs. Every transaction is different, and it's ultimately more about what it takes to get a mutually beneficial deal to the closing table.
Buyers can finance the VA Funding Fee
The VA home loan program is funded in part by the VA Funding Fee, which varies based on a buyer's service history, disability status, and any previous use of their VA loan benefit.
About a third of VA buyers are exempt because they receive compensation for a service-connected disability. Buyers who aren't exempt don't have to pay the VA Funding Fee upfront. Most choose to finance the cost on top of their loan, and it's even possible to have a seller pay the fee as part of his or her concessions.
When it comes to closing costs, the VA loan program aims to make it easier for veterans and military families to land their dream home. It also gives home sellers a lot of leeway to help would-be buyers lock down the last financial piece of the home-buying journey.
This article was written by Chris Birk, director of education at Veterans United Home Loans and author of "The Book on VA Loans: An Essential Guide to Maximizing Your Home Loan Benefits."
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