You’ve probably heard a lot of talk about the closing costs (sometimes called settlement charges) associated with loans and home purchases. Many borrowers want to know up front what their closing costs will be, but unfortunately, it’s impossible to know a solid figure until late in the loan process. This is because costs can be influenced by a number of factors, such as the specific type of loan you’re seeking and the location of the property you wish to buy. Once you fill out a loan application, the lender will provide you with a loan estimate, which is a general outline of all aspects of the loan, including projected closing costs. The exact figures may be slightly different at the end, but the loan estimate will give you an approximate figure to work with.
One of the biggest benefits of VA home loans is that closing costs are limited – in fact, there are certain charges associated with closing a loan that VA borrowers are not allowed to pay. Those include:
These costs can be paid by your seller, by a credit from your lender (basically an adjustment to your interest rate), or by a credit from a real estate agent (although this is illegal in some states). In lieu of these options, you, the borrower can cover these costs in a non-direct way as part of an origination fee.
Fees for originating, underwriting, and processing your loan are among the costs that VA borrowers can pay. Your lender can charge you a flat 1% fee for these actions (plus other normal charges, up to a reasonable amount), which could also cover the costs listed above. Alternatively, your lender can itemize costs specifically associated with orgination, underwriting, and processing and have you pay the total, as long as it does not exceed 1% of the loan. Other allowable costs for the loan itself are the title exam and insurance and a property survey, if one is needed. VA borrowers will also be responsible for prepaid finance charges (PFC) and paid outside closing costs (POC). PFC may include:
POC cannot be rolled into your overall financing. They may include:
In many cases, the seller will pay part or all of the closing costs on VA loans. It’s all up to how you and your real estate agent choose to negotiate your contract – there are definitely ways to make paying your closing costs worthwhile in the eyes of your seller. The VA has no limits on what percentage of closing costs you can ask your seller to pay, and they can also pay up to 4% of the loan value as part of their concessions. However, the seller is not required to cover any of the charges listed in this article.
Closing costs can be one of the most complicated aspects of securing a loan and buying a home, so it’s in your best interest to work with caring professionals who understand the details, like the family of VA loan specialists and lenders at Fortress VA Loans. We can get you started on securing the home of your dreams today, and we can answer any questions you have throughout the process.