Stationed overseas or serving in the United State.

A Guide to Veterans Affairs Loan Closing Costs

Whether stationed overseas or serving in the United States, the U.S. Armed Forces enjoy a number of benefits upon the end of their service in the military, such as specially provided health benefits and benefits under GI Bill 1 after 9/11. Through free college. 

These benefits also extend to housing assistance through Veterans Affairs backed home loans. And while these loans come with great terms and don't require a down payment, they still come with some additional costs.

The Department of Veterans Affairs offers home purchase loans, refinance loans and direct loans to Native American veterans. Financing fees for VA-backed construction and home purchase loans range anywhere from 1.4% to 2.3% for first use. 

Rates remain largely the same after first use.Some costs are paid by the seller only, while other costs are incurred by the buyer and seller to negotiate who pays.

Although the process of buying a home is indeed a costly endeavor, mortgage closing costs bridge the gap between the final price of the property and the additional expenses incurred completing the purchase. 

These additional costs, sometimes called settlement fees, are paid to the mortgage lender to make and service the loan. Closing costs may include construction fees, appraisal fees, land surveying, taxes and other related fees. Although the buyer will be responsible for paying most of these charges, some costs are covered by the seller, while others can be negotiated.

In recent years, the average closing cost for home buyers has been around 2% and 5% of the total loan amount. According to the National Association of Realtors, the average sale price of existing homes in June 2021 was $363,300. If someone bought a home at that price and had 5% of the closing costs associated with the mortgage, the final cost would be an additional. 

An outline of these costs is included in the loan estimate that lenders are required to provide within three business days of receiving the mortgage application. 4 In many cases, these initial closing cost estimates may be slightly increased or decreased. 

If so, the final amount will be disclosed next to the original estimate, along with a column outlining the difference, on the lender's closing disclosure form, which is submitted at least three days prior to closing.

What Makes VA Closing Costs Different

VA-backed mortgages are inherently different from standard mortgages because the Department of Veterans Affairs (VA) promises lenders that they will be able to recover some or all of the loan if the home goes into foreclosure. This type of backing lending significantly reduces the amount of risk required by the lender, allowing veterans to be approved even if they do not make a down payment. 

Since lenders generally view this as a safe bet, VA-backed mortgages tend to offer lower closing costs. Although typical closing costs range anywhere from 2% to 5% of the home's purchase price, similar costs for VA-backed loans have financing fee rates of between 1.4% and 2.3%, according to the VA. Using the same example above, a home listed at $363,300 would only have $8,356 in closing costs.

Common VA Loan Closing Costs and Who Pays Them. Although they operate in much the same way as other mortgages, VA-backed mortgages have many of the same closing costs. There is still some difference between the costs associated with a VA-backed mortgage and a regular mortgage. 

It's important to note that according to the VA, a seller cannot pay fees that exceed 4% of the total debt, known as a seller lien. This rule only applies to certain closing costs, such as VA financing fees. The rule does not cover loan discount points. Here are some of the closing costs you can expect to see on your VA-backed mortgage loan estimate.

Real Estate Professionals Commission. Realtors must also pay, so any commission fees they receive from selling the home or property are covered by the seller. buyer broker fee. Similar to the commission fee listed above, this includes any brokerage fees that a real estate broker may charge. 

In most cases, both the listing broker and the buyer's agent share the commission. Brokerage. Brokerage fees are required when a broker is engaged to complete a transaction or to meet other special needs including buying, selling and negotiating. Termite report. 

No one wants a home that is at risk of being infested with termites. As the seller is trying to leave this home, they are responsible for demonstrating that the house is structurally strong and is not eaten by fierce insects. It is always the seller's responsibility unless the buyer is using a reference loan.

Charges that can be covered by the buyer

VA financing fee. This is a one-time payment made by a veteran, service member, or survivor on a VA-backed loan. According to the Department of Veterans Affairs, the fee "helps American taxpayers reduce the cost of the loan because the US home loan program does not require a monthly down payment or mortgage insurance. 

Loan origination fee. These are just the fees charged by the lender while processing the loan application. This type of fee usually depends on the total loan amount and is usually between 0.5% and 1% of that amount. 

Loan Waiver Points. These points can act as a trade-off of sorts between the buyer's initial costs and their monthly payment from now on. These points come at a financial cost, which is calculated against the loan amount. Using these points can lower the interest rate as you pay more upfront.

VA assessment fee. If you are going to use VA money to buy your new home, the property will need to be appraised by a VA approved person. 5 This fee helps cover that appraiser's time, travel, and other appraisal needs. Unlike some other charges, this fee can be negotiated with the seller to add it to their list of perks. Risk and property insurance, state and local taxes, and property taxes. 

As a new owner of a soon-to-be property or home, the buyer must pay the costs of continuing risk insurance coverage as well as the annual taxes associated with the property. Registration Fee. When the sale is completed, a record of the completion of the sale must be maintained by the local government. A registration fee is charged for the transaction to be part of the public record.