VA Loan Closing Costs: What Fees Should You Expect?

When buying or refinancing a home with a VA loan, you'll be responsible for paying closing costs. These fees are necessary to cover the processing and finalizing of your loan. While all loans come with closing costs, VA loans have a few specific fees. Here's a breakdown of what to expect with VA loan closing costs. Who Pays Closing Costs on a VA Loan? For VA loans, closing costs are mainly paid by the buyer. However, similar to other loan types, sellers often cover real estate agent commissions and brokerage fees. In some states, the VA may require the seller to pay for certain expenses, like termite inspections. Additionally, your lender may waive or cover some of the fees that would typically apply to a conventional loan, such as attorney or inspection fees. If you're looking to minimize your closing costs, you can explore options like applying for closing cost assistance, negotiating a credit from your lender, or asking the seller to contribute toward your closing costs during negotiations. How Much Are VA Loan Closing Costs? VA loan closing costs usually range between 1% and 5% of the total loan amount. For example, on a $300,000 loan, closing costs could be between $3,000 and $15,000. According to the Consumer Financial Protection Bureau (CFPB), the average VA loan closing cost in 2021 was $8,391, with the average VA loan amount being $354,474. How Are VA Loan Closing Costs Different? One significant benefit of VA loans is that they don't require mortgage insurance, even with 100% financing. This can save VA borrowers between $1,800 and $2,400 per year on a $250,000 loan compared to private mortgage insurance (PMI). Instead, VA borrowers pay a one-time funding fee, which helps keep the VA program running. In addition to the lack of mortgage insurance, VA loan borrowers pay a capped 1% loan origination fee, and sellers are allowed to contribute up to 4% of the loan amount toward the buyer’s closing costs. Breakdown of VA Loan Closing Costs Here are the common closing costs you’ll encounter as a VA loan borrower: VA Funding Fee: A one-time fee that can be paid upfront or rolled into the loan. It ranges from 0.5% to 3.6% of the loan amount, depending on factors like whether it's your first VA loan and the size of your down payment. Origination Fee: This fee compensates the lender for processing the loan and is capped at 1% of the loan amount. Appraisal Fee: VA loans require an independent appraisal to assess the property’s value. Appraisal fees typically range from $600 to $800, depending on the location. Title Insurance: This ensures the property has no legal disputes or liens. Expect to pay between $300 and $1,500 for both lender and buyer title policies. Recording Fee: This fee records your new ownership and loan documents with local government offices and usually costs less than $200. Credit Report Fee: Lenders charge a fee, typically around $50, to pull your credit report. Homeowners Insurance: You’ll need to pay for the first year of homeowners insurance upfront at closing. Costs vary depending on factors like home value, location, and coverage. Property Taxes: Depending on the timing of your purchase, you’ll pay a prorated amount of property taxes. Flood Zone Determination: This check verifies whether the home is in a flood zone, with fees typically under $20. Additional Potential Costs: Discount Points: You may choose to buy down your interest rate by paying for discount points upfront. Each point typically costs 1% of the loan amount and reduces your rate by 0.25%. Home Inspection Fees: Though not required, it’s recommended to get a home inspection, which usually costs between $250 and $700. HOA Fees: If your home is part of a community governed by a homeowners association, you’ll be responsible for paying HOA fees, which can vary widely. What Closing Costs Can't VA Buyers Pay? The VA limits the types of fees lenders can charge. Some non-allowable fees include loan application or processing fees, rate lock fees, notary fees, and document preparation fees. Can You Roll VA Loan Closing Costs Into Your Loan? You can only finance the VA funding fee into your loan, while the other closing costs must be paid at closing. To cover these costs, you can explore seller concessions, closing cost assistance, or lender credits. How to Reduce VA Loan Closing Costs If closing costs are a concern, here are three strategies to reduce them: Seller Concessions: Sellers can contribute up to 4% of the loan amount to cover closing costs. Closing Cost Assistance: Some grants or forgivable loans are available to help cover closing costs. Lender Credits: Some lenders offer credits to cover closing costs in exchange for a higher interest rate. By understanding the different fees involved and exploring available options, you can be well-prepared for the closing costs associated with your VA loan.

What Is Earnest Money?

When you make an offer to buy a home, it's important to demonstrate your commitment from the start. This is usually done through an earnest money deposit, which shows the seller that you're serious about the purchase. Keep reading to understand more about this initial deposit and how it works. Earnest money is a deposit made by a buyer when purchasing a home, often called a good faith payment. It shows the seller you're serious about the purchase and committed to moving forward if the terms of the agreement are met. The deposit is typically large enough to keep you engaged in the process and gives the seller confidence to stop accepting other offers. A neutral third party, such as an escrow company or attorney, will hold the earnest money until the sale is completed or the contract is terminated. What is earnest money used for? Earnest money serves as a commitment from the buyer to the seller. In exchange, the seller takes the home off the market while both parties work toward closing the deal. If the purchase goes through, the earnest money is applied to the down payment. If the buyer backs out for a reason not covered by contingencies in the sales contract, the seller may keep the deposit to compensate for the time and missed opportunities. How much is earnest money? The amount of earnest money is typically between 1% and 3% of the home's purchase price. For example, a $300,000 home might require a deposit between $3,000 and $9,000. Your real estate agent can help you decide the right amount based on local practices and the competitiveness of the market. How much earnest money should I put down? Your earnest money deposit should reflect your commitment to buying the home. In competitive markets, putting down a higher deposit can help strengthen your offer. Your agent will guide you on what’s considered competitive in your area. Is earnest money required? While it’s not always required, earnest money is common, especially in competitive markets. Sellers prefer offers with an earnest money deposit as it shows serious intent to proceed with the purchase. When is earnest money due? Typically, earnest money is due within a few days after both parties sign the purchase agreement. Who holds earnest money? The earnest money is held in an escrow account by a third party, such as an escrow company or a real estate attorney. This ensures the money is handled fairly and according to the terms of the purchase agreement. How do you pay earnest money? Earnest money is usually paid by cashier's check or wire transfer. Personal checks are rarely accepted. Be sure to follow the instructions from your escrow company or attorney carefully to avoid potential scams. How to show proof of earnest money to your lender To show proof of your earnest money deposit, provide your lender with a receipt from the escrow holder and your bank statement showing the withdrawal. What happens to earnest money at closing? At closing, your earnest money is applied toward your down payment or closing costs. If any money is left over, it’s refunded to you. Is earnest money refundable? Earnest money is refundable if certain conditions, or contingencies, in the purchase agreement aren’t met, such as a failed home inspection or financing issues. If you back out for reasons not covered by the contingencies, the seller may keep the deposit. Can you lose earnest money? Yes, you can lose your earnest money if you back out of the deal without a valid reason outlined in the contract or if you fail to meet deadlines for your contingencies. How to protect your earnest money To safeguard your deposit, make sure your earnest money is placed in an escrow account, understand the contingencies in your contract, and meet all deadlines. Keep in close contact with your real estate agent and lender to ensure everything proceeds smoothly.

First-Time Home Buyer Assistance Programs and Grants

If you're seeking financial assistance to purchase your first home, here's a helpful guide to explore the various assistance programs and grants available for first-time homebuyers. Financial Support vs. Marketing It’s important to understand that not all "first-time buyer programs" are what they seem. Often, when you see advertisements like "Ask Us About Our Special First-Time Home Buyer Programs," it’s more of a marketing strategy than a specific offer of financial assistance for first-time buyers. In these cases, it’s essential to ask whether the program being promoted provides direct financial support or if it’s simply referring to loan programs that are available to all homebuyers, not just first-timers. Financial Support vs. Loan Programs There are loan programs available to all buyers that might be especially helpful for first-time buyers. Two common examples include: FHA loans: These allow buyers to purchase with as little as 3.5% down, don’t require reserves after closing, and allow co-signers or gift funds for the down payment, making them a great option for those who haven't saved a lot. Fannie Mae and Freddie Mac 3% down programs: These let you put down just 3%, and mortgage insurance costs are often lower than with FHA loans. These programs reflect how federal government support is built into the U.S. housing finance system. While private lenders issue these loans, the government backing makes it possible for buyers to access benefits like lower down payments. However, these programs don’t offer direct financial assistance—rather, they feature favorable terms that first-time buyers often find appealing. Types of First-Time Home Buyer Financial Support Direct financial support for first-time buyers typically comes from local governments or nonprofit organizations. Support can take various forms, such as: Down payment assistance Tax credits Below-market-rate housing Special programs for essential workers like teachers or firefighters For example, in Seattle, the city offers up to $45,000 in down payment assistance to first-time buyers, but eligibility is based on income. Many cities set income limits at 80% of the area's median income, and each program has specific requirements regarding repayment or shared appreciation when the home is sold. Another example is San Francisco, where first-time buyers can take advantage of a tax credit program that enhances the typical mortgage interest deduction, significantly reducing homeownership costs. How to Find First-Time Home Buyer Financial Support Here are two ways to find financial support in your area: Search local government websites: Look for terms like “affordable housing” or “down payment assistance” along with your city’s name. You’ll usually find detailed information on local programs, including eligibility criteria and how to apply. Ask your lender: Not all lenders work with financial support programs, so it’s important to find one that does. A lender experienced in these programs can guide you through your options and help you determine which ones you might qualify for.

A Complete Guide to First-Time Home Buyer Programs

A Guide to First-Time Home Buyer Programs Buying your first home is an exciting yet complex process. From finding the right home to securing financing, there are many steps involved. Luckily, there are various first-time homebuyer programs designed to make this process easier by offering financial assistance, flexible lending guidelines, and other benefits. Here’s what you need to know about these programs and how they can help you achieve your dream of homeownership. Types of First-Time Home Buyer Programs Down Payment Assistance Many first-time homebuyers struggle to save for a down payment. Down payment assistance programs can help by providing financial support, often in the form of loans or grants. These programs usually work with popular loan options like FHA, VA, USDA, and conventional loans. How it works: The assistance typically comes as a second mortgage, sometimes interest-free, with deferred payments that may not need to be repaid until you sell your home or refinance. In some cases, the assistance is a grant, meaning you won’t need to repay the funds. Benefits: Helps with upfront costs, making homeownership more accessible. Limits: These programs often have income limits and are only available with approved loan programs. Grants Grants for first-time homebuyers provide financial assistance that typically does not need to be repaid. These grants can be used to help cover down payments or closing costs. They are often targeted toward low-income buyers or buyers in specific professions, such as teachers or firefighters. Benefits: Provides cash assistance without the need for repayment. Limits: Income, profession, and neighborhood restrictions often apply. Penalty-Free IRA Withdrawal First-time homebuyers can tap into their IRA or Roth IRA to withdraw up to $10,000 for a down payment without facing the usual 10% penalty for early withdrawal. You’ll still be responsible for income tax on traditional IRA withdrawals. Benefits: Access to savings without penalty fees. Limits: You can only withdraw up to $10,000, and tax implications may still apply. Closing Cost Assistance Closing costs can add up to 2-5% of the home’s purchase price. Programs offering closing cost assistance can help reduce the out-of-pocket expenses at the time of purchase. This assistance may come in the form of grants, loans, or seller concessions. Benefits: Reduces the overall cost of purchasing a home. Limits: Assistance is typically limited by income and loan type. Interest Reduction Programs First-time homebuyers can also benefit from programs that reduce the interest on their mortgage. For example, the Mortgage Credit Certificate program offers tax credits for a portion of the mortgage interest you pay annually, helping to lower your overall cost of borrowing. Benefits: Reduces the amount of interest paid over the life of the loan. Limits: Income and home price restrictions apply, and there may be application fees. First-Time Home Buyer Loan Programs FHA Loan The Federal Housing Administration (FHA) loan is one of the most popular options for first-time homebuyers because it allows for a lower credit score and down payment as low as 3.5%. Credit score: 580 or higher. Down payment: 3.5%. Limits: Requires mortgage insurance. VA Loan VA loans are available to veterans, active-duty military, and their families. These loans offer no down payment and no private mortgage insurance (PMI), making them a highly attractive option for qualified buyers. Credit score: No minimum. Down payment: None required. Limits: Only available to eligible veterans and military personnel. USDA Loan A USDA loan is available for homes in eligible rural areas and allows for low to no down payment. It’s ideal for buyers with limited income. Credit score: 640 or higher. Down payment: None or minimal. Limits: Location and income restrictions apply. Conventional Loan Conventional loans are not government-backed, but many offer down payments as low as 3% for first-time buyers. These loans may require higher credit scores and stricter approval guidelines than FHA or VA loans. Credit score: 620 or higher. Down payment: 3% or more. Limits: Higher credit requirements, no government backing. State and Local Programs Many states and local governments offer first-time homebuyer programs that provide down payment assistance, low-interest mortgages, or closing cost help. For example: California: The MyHome Assistance Program offers down payment assistance loans for first-time buyers. Florida: The Florida Housing Finance Corporation provides low-interest loans for buyers with a credit score of 640 or above. New York: The State of New York Mortgage Agency (SONYMA) offers low-interest loans with down payment assistance. Conclusion First-time homebuyer programs provide essential financial support and flexibility, helping make homeownership more attainable. From down payment assistance to special loan programs, there’s a range of options to explore. Before moving forward, it’s wise to research programs available in your area and work with a mortgage professional to determine which options best meet your needs. With the right assistance, you’ll be one step closer to purchasing your first home.