VA Loans details of closing costs

VA home loans are available to active military and veterans. They are possibly the best loans available today because they offer 4 major benefits. 100% financing with no down is payment required

The loan offers 100% financing, no down is payment required The loan is a 30 year fixed interest rate, and interest rates are close to the lowest they have EVER been

VA loans are not credit score driven and have flexible underwriting guidelines to get active military and veterans qualified

There are 3 major costs that are “upfront”. They are the earnest money deposit, home inspection fee and appraisal fee. When you make an offer to buy a house, it is customary to leave a deposit called a “earnest money deposit”. This can range from 1-3% of the property purchase price. These deposit funds will be held with an escrow company after your offer is accepted. If you negotiate for the seller to pay all of your closing costs, you will get this money refunded when you close on the house.

Though it is optional to get an inspection on the house with a VA loan, it is highly recommended. The cost is on the buyer and usually run about $300 paid upfront. The inspector will check all aspects of the house, the structure, electrical, plumbing and more, so that you know you are making a sound investment.

There are 3 major upfront costs required when buying a house with a VA loan; the earnest money deposit, home inspection fee and appraisal fee. When you make an offer to buy a home, it is customary to put up an earnest money deposit with your offer to show the seller you are serious. This can range from 1-3% of the property purchase price. These deposit funds will be held with an escrow company after your offer is accepted. If you negotiate for the seller to pay all of your closing costs, you will get this money refunded when you close on the house.

Next, you will have to pay for a home inspection. It is optional for a VA buyer to have a home inspection, but highly recommended. The inspector will work for you as an independent 3rd party and inspect all aspects of the house, the structure, electrical, plumbing and more, so that you know you are making a sound investment. Home inspections generally run about $300. This has to be paid up front.

And lastly, you will have to pay of the VA appraisal. When you purchase a property the lender will require an appraisal on the property, this has to be ordered right away in the purchase of property. A VA appraisal current costs $400. So to recap, in the beginning stages of buying a house, you will have to come up with an earnest money deposit, $300 for a home inspection and $400 for an appraisal.

The rest of the costs are paid when you close on the house. The closing costs can be broken into 4 categories; lender fees, title/escrow fees, reserves and pre-paids taken by the lender. There are certain fees that the VA borrower is NOT allowed to pay. These will have to be paid by the seller. The major fees the VA borrower is NOT allowed to pay for are:

The lender has fees involved with processing, underwriting, credit check and originating your loan. Remember, the buyer is not allowed to pay for the underwriting and processing fee, so these fees will have to be paid for by the seller. The origination fee can vary depending on your interest rate. Generally if you want to lock in the lowest interest rate, a lender can charge up to 1% of the loan amount as an origination fee. Additionally, if you want to buy down the interest rate below market, you can pay discount points to get an even lower than market rate

When you get a VA home loan, you will have to pay the interest on the loan from the day you close until the end of the month. So for example if you closed on your new home May 5th, you would owe interest on the loan from May 5th to May 31st. This is called pre-paid interest and is part of your closing costs. But then your first payment would not be until July 1st. So you essentially get to skip the June payment even though you move in the house May 5th. The reason for this is because mortgage payments are made in arrears or behind . You made your May payment as part of your closing costs, and you wont make your June payment until July 1st. It can be advantageous to time your closing at the end of the month, so you limit the pre-paid interest and reduce your overall closing costs.

Pre-Paid Interest on the Loan. When you get a VA home loan, you will have to pay the interest on the loan from the day you close until the end of the month. So for example if you closed on your new home May 5th, you would owe interest on the loan from May 5th to May 31st. This is called pre-paid interest and is part of your closing costs. But then your first payment would not be until July 1st. So you essentially get to skip the June payment even though you move in the house May 5th. The reason for this is because mortgage payments are made in arrears or behind . You made your May payment as part of your closing costs, and you wont make your June payment until July 1st. It can be advantageous to time your closing at the end of the month, so you limit the pre-paid interest and reduce your overall closing costs.

When you obtain a VA home loan the lender will collect a reserve of property taxes and homeowners insurance. The lender can require sometimes as much as 9 months of property taxes paid up front at closing. This can be a large expense. If your property taxes are $300/mo, this means the lender could potentially take a reserve of $2,700. In addition, the lender will take a few months of your homeowners insurance up front in advance. It is very important for you to plan for this cost at closing or arrange for the seller to credit you this cost. Property tax reserves required by the VA lender are one of the largest costs related to closing and can catch the borrower by surprise at closing if this is not fully explained up from by the lender. But remember, this is really not a loan cost. These are property taxes that you will have to pay anyway as part of ownership; you are just paying them in advance. If you sell or refinance, you will get a refund of any remaining property taxes or home owners insurance held in reserve by the lender.

A requirement from the VA lender is that you to pay an entire 12 months of homeowners insurance policy in advance. All lenders require that you keep a homeowners policy on a property if there is a mortgage on it. This will insure against fire and other disasters that could damage your house. Paying 12 months in homeowners insurance up front can total anywhere from $400 to $1,000 or more. Call your insurance agent for a quote as the cost will depend on where your property is located and the purchase price.

VA Funding Fee The VA charges a 2.15% funding fee for VA borrowers using their VA eligibility for the 1st time and 3.3% for those using it for the 2nd time or subsequent times. If you have 5% or more down payment, this funding fee is less than the above stated percentages. Also, if you have a 50% or greater VA disability rating the funding fee is completely waived. VA allows this fee to be rolled into your loan. You do NOT have to come out of pocket for this fee.

Thee closing costs associated with buying a home with a VA home loan can total from 2-4% of the purchase price. It is very important to either plan to have money set aside for these costs or work with the real estate agent who will represent you to negotiate with the seller to pay for your closing cost

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