Chris Andaya
Purchasing a home is a significant investment, and understanding the expenses associated with the home buying process is essential to ensure that you are financially prepared. Closing costs are a crucial aspect of purchasing a home, and they include a variety of fees paid at or before closing on a home loan. Homebuyers often find closing costs to be confusing because the term “closing costs” is broad and used to describe many different costs and fees associated with purchasing a home and applying for a mortgage loan. In this article, we will discuss the closing costs associated with the VA loan process.
Home Purchase Closing Costs
Home purchase closing costs are expenses that are associated with the purchase of a home with a VA loan. These costs are not directly related to the VA loan application process but are necessary expenses that need to be paid for at the time of closing. Some of the common home purchase closing costs include:
Daily Interest Charges – This is the interest paid on the mortgage from the day of closing until the first mortgage payment is due.
Homeowners Association (HOA) Fees – If the property is located in a community governed by an HOA, the buyer may be required to pay HOA fees at closing.
Homeowners Insurance – This is insurance that protects the home and the homeowner’s personal belongings from damage and theft.
Home Warranty Fees – This is a type of insurance that covers the cost of repairs or replacements of certain appliances and systems in the home.
Prepayment of Property Taxes – This is a prorated amount of property taxes paid at closing for the remaining part of the year.
Real Estate Commissions – This is the fee paid to the real estate agent or broker involved in the sale of the property.
Recording Fees – This is the fee paid to record the deed and other legal documents with the local government.
VA Loan Closing Costs
VA loan closing costs are expenses that may be incurred by the VA loan application process. These costs are directly related to the VA loan and include:
Appraisal Fee – This is the fee paid to have the property appraised to determine its value.
Credit Report – This is the fee paid to obtain the borrower’s credit report.
Discount Points – This is a fee paid to reduce the interest rate on the loan.
Origination Fee – This is the fee paid to the lender for processing the loan application.
Pest Inspection – This is the fee paid to have the property inspected for pests.
Septic Inspection – This is the fee paid to have the property’s septic system inspected.
Title Charges – This is the fee paid for the title search and insurance to ensure that there are no liens or other issues with the property’s title.
Well-Water Inspection – This is the fee paid to have the property’s well water inspected.
VA Funding Fee – This is a fee paid to the VA to guarantee the loan.
Seller Concessions
One advantage of the VA loan benefit is that sellers can pay all of the closing costs associated with the VA loan process. This includes the appraisal fee, credit report, discount points, and other fees associated with the VA loan application process. However, sellers are not required to pay these closing costs, so it is up for negotiation between the buyer and seller.
Another benefit of the VA loan benefit is that sellers can pay up to 4% of the home purchase price in “seller concessions.” These seller concessions can include closing costs not associated with the VA loan application process, including daily interest charges, HOA fees, homeowners insurance, and other necessary expenses. Common seller concessions include covering the origination fee, appraisal fee, title insurance, and property taxes.
VA Loan Non-Allowable Fees
The VA loan benefit is designed to make homeownership more affordable for qualifying veterans and servicemembers. One of the many ways the VA accomplishes this is by restricting military veterans and servicemembers from paying certain fees associated with the VA loan.
VA loan homebuyers are not allowed to pay for certain fees and costs. These are called non-allowable fees and these include:
Fees for additional appraisals requested by the lender or seller for a Reconsideration of Value.
Fees for appraisals requested by anyone other than the veteran or seller.
Fees for a flood zone determination by the lender or appraiser.
Non-title related attorney fees
Real estate broker or agent commissions or fees.
Check Your VA Loan Eligibility
Ready to determine your VA loan eligibility? It is a simple and easy process to determine if you meet the basic requirements to obtain a VA loan.
You may be eligible for a VA loan if you meet one or more of the following requirements:
You have served 90 consecutive days of active service during wartime.
You have served 181 days of active service during peacetime.
You have more than 6 years of service in the National Guard or Reserves.
You are the spouse of a service member who died in the line of duty or as a result of a service-related disability.
You have received an honorable discharge.
Once you have determined that you are eligible for a VA loan, you will need to find a lender that participates in the VA Home Loan Program. These lenders are approved by the Department of Veterans Affairs and can guide you through the entire VA loan process.
Conclusion
Closing costs are an essential part of any home buying experience, and they can be confusing and overwhelming. This is especially true for those who are using a VA loan to finance their home purchase.
It is important to understand the difference between VA loan closing costs and home purchase closing costs, as well as the various fees and expenses that fall under each category. By doing so, homebuyers can better plan and budget for their home purchase, and avoid any surprises at closing.
Additionally, understanding the non-allowable fees associated with VA loans can help veterans and servicemembers save money and make homeownership more affordable.
If you are a qualifying veteran or servicemember and are interested in purchasing a home using a VA loan, it is important to determine your eligibility and find a lender that participates in the VA Home Loan Program. With the right guidance and support, you can achieve your dream of homeownership and enjoy the many benefits of the VA loan benefit.
