VA Loan Closing Costs

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When purchasing a home in Colorado Springs, the VA home loan is a powerful tool for veterans. However, understanding the closing costs associated with this loan can sometimes be complicated. Here at 719 Lending, we specialize in helping veterans understand and navigate these costs.

The Uniqueness Of VA Loan Closing Costs

VA loan closing costs are different from traditional mortgage loans. The VA sets specific rules regarding what fees can be charged, limiting certain costs and regulating others.

Non-Allowable Fees

Non-allowable fees are charges that the lender cannot require a borrower to pay. Examples of these include prepayment penalties, lender attorney fees, and settlement charges. While non-VA loans may require these fees, VA borrowers are exempt, reducing the overall cost of the loan.

Allowable Fees

While some fees are non-allowable, others are permitted under VA loan rules. These include the VA funding fee, loan origination fees, recording fees, credit report fees, title insurance, and other closing fees.

A Close Look at the VA Funding Fee

Unique to VA loans, the VA funding fee is a one-time payment to the Department of Veterans Affairs. The fee supports the continuation of the VA loan program. The amount depends on the loan type, how many times you’ve used your VA loan benefit, and your down payment amount.

An Example Of A VA Funding Fee

For instance, if you make a down payment of less than 5% on your first home purchase using the VA loan, you’d have to pay a funding fee that represents 2.15% of the total loan amount. If you made a down payment of 10% or more, then your funding fee would only be 1.25%.

VA Funding Fee Exemption

Certain circumstances may exempt you from paying the funding fee. These include if you’re receiving VA compensation for a service-related disability, if you’re the surviving spouse of a veteran who died in service or from a service-related disability, or if you’re the recipient of the Purple Heart.

Key Components of VA Loan Closing Costs

Aside from the non-allowable and allowable fees, there are several other components that make up the closing costs on a VA loan. These include origination fees, appraisal fees, discount points, and seller concessions.

Origination Fee

The origination fee is for underwriting and processing the loan. The VA limits this fee to 1% of the total loan amount, keeping costs in check for VA borrowers.

Appraisal Fee

VA borrowers are also required to pay for a VA appraisal. This cost varies and will be included in your closing costs.

Discount Points

VA loans permit the purchase of discount points to lower your interest rate. The cost of these points is expected to be covered at the closing.

Seller Concessions

VA loans allow for seller concessions, where the seller pays costs that are not required of them. This is limited to 4% of the total loan amount and is always a product of negotiation.

VA Loan Closing Costs vs. Other Mortgages

VA loans have some unique costs and guidelines compared to other mortgage types. The VA funding fee is the most notable difference, but there are also VA-set limits on the origination fee and the type of closing costs that veterans can pay.

Can You Roll Closing Costs into a VA Loan?

Only the VA funding fee can be rolled into the loan. However, other closing costs can be lowered via negotiations with the seller or by asking the seller to lower the home price by the amount of the fee.

When Will I Know My Final Closing Costs?

Your lender will provide an official estimate of your closing costs once they have a full application that includes your income, credit, and specific property address. This estimate is known as the Loan Estimate.

The Loan Estimate

The Loan Estimate provides a detailed picture of your estimated costs and fees. It includes information about your loan amount, interest rate, monthly payments, estimated loan-related closing costs, other estimated costs to close, and the total estimate of how much cash you’ll need to close.

Veterans United Closing Cost FAQs

Veterans United is proud to support veterans with their VA home loans. We allow borrowers to purchase discount points at closing, and we usually charge the flat 1% origination fee. We also offer closing cost assistance through an independent bank and allow for the negotiation of closing costs with sellers.

Wrapping Up

Understanding VA loan closing costs is an essential part of purchasing a home. While it can seem complex, with the right guidance and support, you can navigate these costs and secure your new home. At 719 lending, we strive to provide that support and guidance to all Colorado Springs veterans.

If you’re a veteran in Colorado Springs considering a VA home loan, contact us today to discuss your options and learn more about VA loan closing costs.