How Much Are Closing Costs on a VA Loan?
Demystify VA loan closing costs. Get clear insights into these homebuying expenses, how they're structured, and practical ways to handle them.
When purchasing a home with a VA loan, understanding closing costs is essential. These are fees and expenses buyers and sellers pay to finalize a real estate transaction. For veterans and service members using a VA loan, these costs have specific regulations and characteristics that differ from conventional mortgages.
Understanding VA Loan Closing Costs
These can include charges for loan origination, property appraisal, title services, and recording the deed. For VA loans, the Department of Veterans Affairs (VA) establishes specific guidelines regarding which fees veterans are permitted to pay. The VA aims to make homeownership more accessible for eligible individuals by regulating these costs.
A distinctive feature of VA loan closing costs involves “non-allowable fees,” which are certain charges lenders are prohibited from passing on to the veteran borrower. These often include attorney fees not related to title work, application fees, rate lock fees, and escrow fees. Lenders typically either absorb these non-allowable fees or pass them to other parties involved in the transaction, such as the seller.
The VA Funding Fee is a one-time charge paid directly to the Department of Veterans Affairs. This fee helps offset the cost of the VA loan program to taxpayers, ensuring its continued availability. The VA Funding Fee is calculated as a percentage of the loan amount and can vary based on factors like whether it is the borrower’s first time using the VA loan benefit, the loan type, and any down payment. This fee supports the program’s ability to offer benefits like no down payment and no mortgage insurance.
Common VA Loan Closing Cost Categories
VA loan closing costs generally fall into several categories, including lender fees, third-party service fees, and government charges. Lender fees cover administrative expenses associated with processing and underwriting the loan. The VA limits the loan origination fee a lender can charge to 1% of the loan amount, covering many administrative costs.
Third-party fees are paid to external providers for services necessary to complete the transaction. An appraisal fee is required for a VA-certified appraiser to assess the home’s market value and ensure it meets VA minimum property requirements. These appraisal fees typically range from $400 to $1,200, though they can be higher in some high-cost areas. A credit report fee is also charged to obtain the borrower’s credit history to evaluate creditworthiness. In some regions or for specific property types, a survey fee may be necessary to confirm property boundaries.
Pest inspection fees are another third-party cost, particularly for homes in areas prone to wood-destroying insects. The VA requires a pest inspection in states where the probability of infestation is moderate to heavy or very heavy. Borrowers are allowed to cover the cost of required termite inspections.
Title-related costs are also part of closing expenses. Title insurance protects both the lender and, optionally, the homeowner from financial losses due to title defects or disputes. Lenders typically require a lender’s title insurance policy, while an owner’s policy, though optional, is highly recommended to protect the buyer’s equity. These costs can vary by state and property value, generally ranging from $500 to $2,500 for the lender’s policy. Closing attorney or settlement fees cover the legal and administrative services required to facilitate the property transfer.
Recording fees are charges imposed by state and local government agencies to legally register the transfer of ownership and the mortgage deed, making them part of the public record. These fees vary significantly by county and can depend on the document’s length and complexity. For first-time VA loan users with no down payment, the 2025 funding fee is 2.15% of the loan amount. For subsequent uses without a down payment, it increases to 3.3%. Making a down payment can reduce the fee; for instance, a 5% or more down payment lowers the first-time use fee to 1.5%, and a 10% or more down payment reduces it to 1.25% for both first-time and subsequent uses. For a VA Streamline Refinance (IRRRL), the funding fee is typically 0.5%.
Strategies to Reduce or Cover VA Closing Costs
Several strategies can help VA loan borrowers reduce or cover their closing costs. One common approach involves seller concessions, where the home seller contributes financially towards the buyer’s expenses. The VA allows sellers to cover all loan-related closing costs without these counting towards a specific concession limit. Sellers can also provide concessions up to 4% of the loan amount for other items beyond standard closing costs. These can include paying the VA Funding Fee, contributing to prepaid property taxes and insurance, or paying off some of the buyer’s debts to help them qualify.
Lender credits offer another way to offset upfront costs. A lender might offer a credit to the borrower, which can be used to cover some or all of the closing costs. In exchange, the borrower typically accepts a slightly higher interest rate on the mortgage. This option allows borrowers to finance their closing costs indirectly over the loan term rather than paying them upfront in cash.
Certain veterans are exempt from paying the VA Funding Fee, which can result in significant savings. Exemptions are generally granted to veterans who receive VA compensation for service-connected disabilities. This includes veterans who would receive disability compensation if not receiving retirement or active-duty pay. Surviving spouses eligible for a VA loan may also be exempt. Active-duty service members awarded the Purple Heart are exempt from paying the funding fee. If a veteran’s disability claim is pending at closing, they may still pay the fee but could receive a refund if their disability compensation is granted later.
How Closing Costs Are Estimated and Finalized
The process of estimating and finalizing closing costs involves specific financial documents designed to provide transparency. The Loan Estimate (LE) is an initial document provided by the lender, typically within three business days of applying for a mortgage. This document outlines the estimated interest rate, monthly payment, and projected closing costs. The Loan Estimate provides a good faith estimate of the expenses a borrower can expect, allowing for comparison shopping among lenders.
The Closing Disclosure (CD) is the final document that details all actual costs associated with the loan. Lenders must provide the Closing Disclosure at least three business days before the scheduled closing date. This three-day review period allows borrowers ample time to compare the final costs on the Closing Disclosure against the initial Loan Estimate.
Borrowers should carefully review the Closing Disclosure for any discrepancies or unexpected charges. While some minor variations are permissible, significant increases in certain fees, such as government recording charges and specific third-party services, are generally limited to a 10% increase from the Loan Estimate. The Closing Disclosure provides a comprehensive breakdown of all charges, including the loan amount, interest rate, principal and interest payment, and the total cash needed to close. Signing the Closing Disclosure indicates acceptance of these final terms and costs.