Whether you are applying for a mortgage loan or a VA loan, a borrower is not exempt from paying the closing costs. But what exactly are you supposed to pay? Well, you probably do know VA loans do not require any type of down payment, so that’s out of the picture. Now, what can you expect in terms of VA loan closing costs? To begin with, on an average the VA loan closing costs can range anywhere from 3% to 5% for a small home purchase, and 1% to 3% for a bigger home purchase.
Now, let us tell you a little secret. Did you know the seller can pay for the VA loan closing costs? Perhaps not, but now you do. The seller can pay up to 4% of the actual home price and this way you won’t have to pay anything out of your pocket for the closing of your home purchase. In addition, if you do not have sufficient funds, you can even request the seller to pay for half or all of your VA loan closing costs through a real estate agent.
Rough Estimates on the VA Loan Closing Costs
Since the type of fees and their amounts vary for different VA loans and the location of the house you choose to buy is also considered, there is no fixed estimate of the VA loan closing costs. Your scenario might have different costs when compared to someone else’s. Nevertheless, here is a rough idea in general of the overall fees included in the closing of your home purchase:
Upfront Funding Fee
As the name implies, this VA funding fee goes directly to the Veteran’s Administration and covers for the costs of the VA program itself. However, please note this fee is not normally paid during the closing of your home, as basically VA homebuyers opt to finance this fee into their loan amount. Also, this fee does not affect the total cost of the home.
As mentioned earlier, with a VA guaranteed loan, you do not have to make a down payment. So, in order to compensate the lender for the loan amount, a 1% origination fee is charged. Therefore, the main aim of this fee is to compensate the lender in full.
Third Party Fees
Of course, there will be other companies involved other than the lender in the home purchasing process. And their charges are thus collectively called third-party fees. To understand more, let’s take a look at the estimated costs of the components of the total third-party fees.
Once your loan has been guaranteed by the Veterans Affairs, the lender will directly request an appraisal fee. After selecting an approved appraiser a $500 fee is paid. However, please note all the third party fees are included in the VA loan closing costs of your purchase.
Title Insurance Policy
The third party fees also includes a title insurance policy, and this fees can vary anywhere between $300 to $2500 and more. So, what does a title insurance policy do? Well, the main aim of this policy is to protect the owner of the home and lender in circumstances where someone claims ownership of the house. If this happens in any case, the title insurance company would be responsible to reimburse the lender for the loss.
Credit Report Fee
As the name implies, this fee is charged by your credit reporting agency. In order to determine whether or not you are eligible for the loan, the lender will pull out a credit report by paying a $35 fee to check your past credit history which basically shows three credit scores from Transunion, Equifax, and Experian, which are all major credit bureaus.
The recording fees can vary anywhere from $20 to $250 and is basically charged for adding your home purchase to the public record. This way, the county will know who is going to be responsible for paying the taxes on your home in the future and which banks are currently financing the loan for your home purchase.
As the name implies, a $400 fee is paid to a survey company which determines the property lines. You might be guessing what are property lines? Well, in simple words, these lines are the defined points of where the neighboring property begins and where your property ends.
Of course, without a real estate attorney, the whole buying process cannot be completed. Your attorney will help in negotiating the price of your home and will guide you throughout the whole buying process. Usually a fee of $400 is paid to the attorney.
Other VA Loan Closing Cost Fees
The overall fees don’t just end here. There are many other fees that are included, such as Flood certification fees, insurance reserves fee, homeowner’s insurance fee, and flood insurance fee.
So, now that you have a rough estimate of the overall VA loan closing costs, opting for a VA loan to purchase a home won’t be a problem.