Understanding VA Closing Costs On VA Home Loans

Gustan Cho Associates are mortgage brokers licensed in 48 states

This Article Is About Understanding VA Closing Costs On VA Home Loans

Understanding VA Closing Costs is important for homebuyers.

  • There are two types of costs when buying a home
  • The down payment and closing costs
  • VA loans do not require any down payment on a home purchase
  • The VA allows lenders to offer 100% financing for eligible homebuyers who are veterans of the U.S. Military with a valid Certificate of Eligibility (COE)
  • However, that does not mean the VA borrower does not have closing costs
  • There are closing costs associated with all mortgage loans
  • This also holds true with VA loans
  • Certain closing costs like the VA Funding Fee can be rolled into the balance of the loan
  • Understanding VA Closing Costs on VA loans is important for borrowers
  • If borrowers structure their VA loans the right way, they can purchase a home with zero down payment and zero closing costs

Understanding VA Closing Costs And How To Include It On The Loan

Understanding VA Closing Costs And How To Include It On The Loan

The greatest benefit of VA loans is that it offers 100% financing.

  • However, how about closing costs? Most potential homebuyers can easily afford the monthly mortgage payment
  • However, coming up with upfront money is an issue
  • The key to getting a great deal with a VA loan is by buying a home with no down payment and zero closing costs
  • Two common questions by home buyers are how much is my monthly payment and how much do I need to bring to closing
  • The down payment required on VA loans is zero
  • That is a no-brainer
  • Lenders offer 100% financing on VA mortgages at competitive mortgage rates due to the VA guarantee

In the following paragraphs, we will explain certain strategies in covering closing costs on VA loans.

No Closing Costs On VA Mortgages Advertisement

Beware of advertisement by lead generation companies.

  • Many lead generation companies will send out millions of mailers to consumers
  • Their marketing strategy is to have consumers contact them
  • Once they contact them, they will sell your name to mortgage companies that will purchase your name
  • Many lead generation companies will have an American flag as their logo to mislead consumers thinking they are responding to a government agency
  • Many lead generation companies will advertise they have no closing costs
  • This is not true
  • All mortgage loans have closing costs
  • There is lender credit where the lender will cover the borrowers closing costs in lieu of a higher mortgage rate

This is not having any closing costs. The borrower is getting a lender credit to cover their closing costs. The cost of the lender credit is a higher mortgage rate.

Understanding VA Closing Costs And What They Are?

In this paragraph, we will help our viewers understanding closing costs.

  • We will detail what closing costs are and how it can be paid through lender credit and/or sellers concessions
  • Closing costs are almost the same on VA loans like any other government and/or conventional loan programs with a few exceptions
  • Typical closing costs on VA loans are the same as FHA, VA, USDA, and Conventional loans
  • This includes pre-paid (which are escrow account), appraisal fees, origination charges, title charges, county stamps, transfer fees, attorney fees, recording fees, and other third-party closing costs

One closing cost with VA loans that other loans do not have is the VA Funding Fee.

VA Funding Fee

VA loans do not have an annual mortgage insurance premium.

  • However, all VA loans do have the VA funding fee
  • The VA funding fee goes to the U.S. Department of Veterans Affairs (The VA) and funds the VA Guarantee Mortgage Program
  • The VA funding fee varies from 1.25 – 3.3 percent of the mortgage loan balance
  • The VA funding fee is added to the balance of the VA loan balance
  • Borrowers do not have to pay the VA funding fee out of pocket
  • Disabled veterans who are disabled 10% or more are exempt from paying the VA funding fee

Please look at the chart below:

VA Funding Fee

Termite home inspections are mandatory on VA home purchase loans. Lenders require a soil treatment inspection report on new construction homes to test for termites.

Mike Gracz, a VA mortgage expert at Gustan Cho Associates said the following:

Resale VA loans on purchases require a wood destroying insect report (WDIR) to prove the home is free of termites. Some states have different names for this report. For instance, South Carolina uses a CL100 report. Other than this requirement, it is essential to remember that the Veteran IS NOT ALLOWED TO PAY FOR THE TERMITE REPORT. There are other potential VA closing costs that depend on the property and its characteristics. These may include a well water inspection, septic inspection, or manufactured home foundation certification. A loan originator can explain which costs apply to your purchase as well as the estimated costs of each.

Sellers Concessions On VA Loans

Gustan Cho Associates are experts in helping borrowers get into a home purchase with no down payment and zero closing costs with VA loans.

  • One way of covering closing costs on VA loans is by getting a seller’s concession by the home seller
  • The VA allows home sellers to contribute up to 4 percent in sellers concession for homebuyers

The sellers concession needs to be stated on the real estate purchase contract.

Case Scenario On Homebuyer Getting A Sellers Concession

Case Scenario On Homebuyer Getting A Sellers Concession

Here is a case scenario:

  • $200,000 purchase price
  • Homebuyers’s closing costs are estimated at $5,000
  • If the purchase contract states the purchase price of $200,000 with no seller paid costs, the buyer will bring $5,000 to closing
  • If the real estate purchase contract states the purchase price of $205,000 with $5,000 in seller paid costs for the buyer, the buyer will not bring funds to the closing
  • In this case, borrowing the full purchase price would make the payment a little higher than the first example

The maximum allowable sellers concession on VA loans is 4% of the purchase price. If the borrower is short in covering the closing costs with the sellers concessions, the lender can offer a lender credit in lieu of a higher mortgage rate.

For more information about this article and/or if you want to qualify for a VA loan with a lender with no overlays, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at [email protected]