Fees You Can Avoid at Closing with a VA Loan
Once a home buyer finds a home and makes an offer that’s accepted, they move to the closing of the deal. Closing is when both parties sign the paperwork, the mortgage begins and the keys change hands.
One thing that many home buyers aren’t prepared for, however, is the additional costs that come with the closing.
On top of having the costs of your mortgage, monthly payment, home insurance and potential HOA dues, there are additional fees that are added in with mortgages.
Fortunately for VA eligible home buyers, some of these costs can be avoided at the closing – and potentially wiped away completely. Here are some of the closing costs you might see and how you can avoid them with a VA loan.
One of the main features of a VA loan is that you don’t have to make a downpayment. If you opt to avoid the downpayment entirely, you’ll end up with 100% financing. While this increases your monthly payments, it does allow you to avoid making a huge payment at closing.
Consider the size of a downpayment: if a home is valued at $250,000 (near the national average), then a downpayment of just 10% would be $25,000, and 20% down would be $50,000. If you don’t have that kind of cash on hand at the closing (or would prefer to keep it), you can avoid the cost entirely.
While the VA loan isn’t the only mortgage option that allows you to purchase with no downpayment, it is the most flexible option since there are few requirements. As an example, a USDA loan allows you to buy with no downpayment. However, the home must be in a USDA approved area, ruling out just about every urban area.
VA Funding Fee
The VA funding fee is a fee that must be paid by the homeowner at closing. The fee is a set percentage based on different factors, such as the size of the downpayment and how many times you’ve used a VA loan. The full breakdown of VA funding fees can be found here.
While every VA loan has a funding fee, most home buyers opt to have the fee rolled into their mortgage. The VA allows you to finance this fee, meaning it’s another fee that you can avoid at the closing of your loan.
Technically, discount points aren’t required to be paid to begin with. A discount point is a set rate that can be added to your closing costs. In return, you’ll receive a lower mortgage rate on your loan.
Because VA loans already have some of the lowest mortgage rates on the market, many home buyers avoid paying discount points at the closing. However, this is up to each home buyer and their unique situation. To learn more about discount points, go here.
There are always two sides of each deal: the buyer and the seller. Why not allow the seller to take on some of the burden?
This is what concessions do. Instead of paying for something or lumping it into your mortgage, you can negotiate to have the seller cover the costs at the closing. The concessions cannot exceed 4% of the value of the loan, but every dollar counts when you’re buying a house.
Some possible VA loan concessions include:
- The VA funding fee
- Discount points
- Prepayments for taxes
- Prepayments for insurance
- Gifting appliances that are already in the house
Because the seller is “paying” for these, the home buyer ends up with less to worry about at the closing while saving money on their mortgage.