Posted on: January 30, 2019
Many VA home buyers already know that the largest part of closing costs — the downpayment — isn’t required with VA loans. Although, the average VA home buyer does choose to make a downpayment of around 10 percent.
Even if VA home buyers choose not to make a downpayment, they’ll still have costs to consider at closing.
Closing costs are exactly what they sound like — costs and fees due at closing. Every type of mortgage has them, although the different mortgage products have different closing costs.
For VA loans, the typical closing cost of a mortgage is going to be around 3 percent of the home value. Though, the specific number will vary home to home and buyer to buyer.
Some of the closing costs of VA loans are specific to the VA loan program, while others are common with other loan programs.
The closing costs that VA home buyers should be aware of:
The VA funding fee is what helps the VA’s guarantee. It’s a percentage added to the mortgage, and all home buyers with a VA loan are required to pay it.
The total cost of the funding fee depends on the buyer. First-time VA home buyers tend to get the lowest percentages — as low as 1.25% of the total cost of the loan. While veterans who are using a VA loan for the second time will get a rate as high as 3.30% of the loan.
The size of the fee depends on the veteran and the size of the downpayment made. Though, VA refinances tend to have much lower funding fees associated with them in general. Learn more about funding fees.
Discount points are an option for any type of mortgage, although they are not required. Discount points are a percentage that can be added to your total closing cost. By paying discount points, home buyers can lower the mortgage rate on their loan. The goal is to save money in the long run by reducing monthly costs. Of course, since this is optional, many VA home buyers ignore them altogether.
There are a few small fees that your lender will charge you at closing. The total cost of these fees depends on the lender, the home you’re purchasing, and size of the mortgage. Some of theses fees include the appraisal, the recording fee, and the title. Learn more about a breakdown of these fees.
Homeowners insurance is required regardless of what loan product you use, and you’ll have to pay some of it upfront. It’s also worth noting that homeowners insurance isn’t always comprehensive. If you purchased a home in a flood-prone area, you will probably have to consider getting flood insurance as well. In total, home buyers should expect to pay $300-500 on insurance.
The good news with VA loans is that the seller of the home is allowed to cover some or all of the closing costs. While this might sound too good to be true, it isn’t uncommon.
If closing costs are a concern, you can talk to your lender or real estate agent about having the seller cover some costs. This can save you thousands at closing.
Generally speaking, the larger the size of the mortgage, the larger the closing costs. The biggest parts of VA closing costs, particularly the funding fee, are percentage based, which has a direct impact on your total closing costs.
There are a lot of small factors to be aware of as well, and together, these can add thousands to your total closing cost.
To find out more about the specific closing costs associated with VA loans, check this complete guide for VA closing costs in 2019.