American military personnel, whether stationed abroad or in the US, receive a range of valuable benefits upon completing their service. These benefits include tailored health coverage, educational support through the Post-9/11 GI Bill, and assistance in purchasing homes backed by the Veterans Affairs (VA). While VA loans offer favorable terms and do not require a down payment, it’s important to be aware of the additional costs involved.
What Are Mortgage Closing Costs?
Mortgage closing costs bridge the gap between a property’s purchase price and the various expenses needed to finalize the transaction. These costs, also known as settlement charges, are paid to the lender for services related to the loan, such as origination fees, appraisals, surveys, and taxes. While buyers typically cover most of these fees, there is room for negotiation between the buyer and seller regarding who bears certain costs.
In 2021, average closing costs for homebuyers increased by 13.4%, reaching $6,905. For instance, on a home priced at $391,200, a 5% closing cost would amount to an extra $19,560.
What Makes VA Closing Costs Different?
VA-backed mortgages differ from conventional loans as they are guaranteed by the Department of Veteran Affairs, minimizing the lender’s risk in case of foreclosure. This assurance allows veterans to qualify without a down payment. VA loans generally entail lower closing costs compared to traditional mortgages, with funding fees ranging from 1.4% to 2.3% of the home’s price.
Common VA Loan Closing Costs and Who Pays Them
VA-backed mortgages share similarities with other types of loans in terms of closing costs. However, there are differences in cost allocations. Sellers, for example, are limited to covering up to 4% of the total loan amount in seller’s concessions, primarily for certain fees like the VA funding fee. Notably, this limit does not apply to loan discount points.
Here are some closing costs associated with a VA-backed mortgage:
Fees the seller must cover
- Real estate professionals’ commission fees.
- Buyer broker fee.
- Brokerage fee.
- Termite report.
Fees the buyer can cover
- VA funding fee.
- Loan origination fee.
- Loan discount points.
- VA appraisal fee.
- Hazard and title insurance, state and local taxes, and real estate taxes.
- Recording fee.