How Much Are VA Closing Costs & Who Pays Them?

VA loans offer significant benefits for eligible service members, veterans, and surviving spouses, facilitating homeownership with favorable terms. However, all home purchases involve closing costs. These are fees and expenses incurred during the homebuying process, paid at loan settlement. Understanding these costs within the VA loan framework helps borrowers prepare for securing their home.

Components of VA Closing Costs

VA loan closing costs cover services needed to finalize a mortgage and transfer property ownership. A loan origination fee, covering lender administrative costs, is typically limited by the VA to 1% of the loan amount. Other standard charges include appraisal fees, which value the property to meet VA minimum requirements. Title insurance protects against future claims, and recording fees register the property transfer with local governments.

Additional common closing costs include credit report fees, survey fees for property boundaries, and flood zone determination fees. Borrowers may also pay prepaid items, such as initial property taxes and homeowners insurance premiums, collected at closing for an escrow account. Discount points are another potential cost, an upfront payment to the lender that can reduce the loan’s interest rate.

The VA Funding Fee is a distinct, one-time charge paid directly to the Department of Veterans Affairs. This fee helps offset the program’s cost and ensures its availability. The funding fee amount varies based on loan type, first-time or subsequent use of benefits, and down payment amount. For example, a first-time user with no down payment typically pays 2.15% of the loan amount, while subsequent users without a down payment may pay 3.3%. A down payment of at least 5% can reduce this fee.

Certain veterans are exempt from paying the VA Funding Fee. This includes veterans receiving compensation for service-connected disabilities, those receiving retirement or active-duty pay instead of such compensation, Purple Heart recipients, and eligible surviving spouses. The VA confirms exemption status, often noted on the Certificate of Eligibility (COE). If a veteran becomes eligible for disability compensation after closing, they may be eligible for a refund.

The VA prohibits lenders from charging certain “non-allowable fees” to veteran borrowers, protecting them from excessive charges. If the lender charges the 1% origination fee, non-allowable fees typically include loan application or processing fees, broker fees, attorney fees not related to title work, document preparation fees, interest rate lock-in fees, escrow fees, notary fees, and tax service fees. These costs are generally absorbed by the lender or covered by other parties, like the seller.

Who Pays VA Closing Costs

VA closing costs can be distributed among the veteran borrower, seller, and lender, guided by VA regulations. While borrowers are typically responsible for their costs, the VA allows flexibility through seller contributions and lender credits. This helps reduce the veteran’s out-of-pocket expenses.

Seller concessions significantly mitigate borrower costs. The VA permits sellers to contribute up to 4% of the loan amount or appraised value in concessions. This 4% limit applies to concessions and is in addition to standard closing costs the seller may pay without limit. For example, a seller can cover all loan-related closing costs, like the origination fee, appraisal fee, title insurance, and recording fees, without counting toward the 4% cap.

Seller concessions can cover various expenses beyond standard closing costs. These include the VA Funding Fee, prepaid items like property taxes and homeowners insurance, and discount points to reduce the interest rate. Sellers might also pay off buyer debts to help loan qualification, or provide gifts like appliances. The extent of seller contributions is negotiable, and sellers are not obligated to offer them.

Lender credits also reduce upfront closing costs. A lender may offer a credit towards closing costs in exchange for a slightly higher interest rate. This allows the borrower to finance some or all closing costs over the loan’s life, rather than paying upfront. While this reduces immediate out-of-pocket expenses, it typically results in a higher total loan cost over time due to increased interest.

Factors Affecting VA Closing Costs

Total VA closing costs vary based on several factors. The loan amount directly impacts percentage-based fees, such as the loan origination fee and the VA Funding Fee. A larger loan leads to higher absolute dollar amounts for these costs.

Geographic location plays a significant role, as state and local regulations dictate certain costs. Transfer taxes, imposed by governments on property transfer, vary widely. Title insurance rates and other localized fees also differ substantially by region, affecting the overall cost. A loan for the same amount could have different closing costs depending on the property’s location.

The specific lender chosen also influences the final cost due to varying fee structures. While the VA limits certain fees, lenders can have different charges for services like processing or administrative costs not covered by the 1% origination fee. Some lenders offer competitive rates with lower fees, while others have slightly higher fees but offer other benefits. Comparing Loan Estimates from multiple lenders is important.

The borrower’s VA Funding Fee status is a substantial factor. As mentioned, eligibility for an exemption due to service-connected disability or other criteria can eliminate this significant closing cost. If the funding fee applies, its percentage varies based on prior VA loan usage and down payment amount, directly impacting the total.

The type of property purchased can influence inspection or appraisal costs. Specific property types might require specialized inspections beyond the standard VA appraisal, such as well, septic, or termite inspections. While a standard VA appraisal is always required, additional specialized inspections can add to the closing cost total.

Estimating Your VA Closing Costs

Estimating VA closing costs involves reviewing key documents from your lender. The primary document is the Loan Estimate (LE), which lenders must provide within three business days of receiving a loan application. This standardized, three-page form offers a breakdown of loan terms, projected payments, and estimated closing costs.

The Loan Estimate is divided into sections detailing various charges. Section A, “Origination Charges,” outlines lender fees for issuing the loan, typically capped at 1% of the loan amount for VA loans. Section B, “Services You Cannot Shop For,” lists fees for required third-party services, like the VA appraisal fee, where the borrower cannot choose the provider. Section C, “Services You Can Shop For,” includes costs for services like title insurance or surveys, where the borrower can select their own provider.

Section G of the Loan Estimate details “Initial Escrow Payment at Closing,” including funds for an escrow account for future property taxes and homeowners insurance. Section H, “Other Costs,” itemizes the VA Funding Fee if paid upfront. If financed, it appears in the total loan amount on Page 1. Reviewing these sections helps borrowers understand specific charges.

Near the end of the homebuying process, borrowers receive the Closing Disclosure (CD), a five-page document detailing final loan terms and all closing costs. Lenders must provide the CD at least three business days before closing. This review period allows borrowers to compare the CD with their Loan Estimate, ensuring accuracy. The Closing Disclosure provides the definitive statement of all financial aspects, including the precise cash needed at closing.