Posted on: September 21, 2018
After a long search, home buyers finally see the right home, make an offer that’s accepted and move on to closing.
Many VA home buyers already know that the largest part of the closing – the downpayment – isn’t required with VA loans. 100% financing is available, although the average VA home buyer does choose to make a downpayment of around 10 percent.
Even if VA home buyers choose to not 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. The specific number varies home to home and buyer to buyer.
Some of the closing costs of VA loans are specific to the program. Others are shared by other loan programs.
Some closing costs on other programs, such as mortgage insurance, aren’t required by the VA at all.
Here are some of 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 tacked on to the mortgage, and all VA home buyers 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, going as low as 1.25% of the total cost of the loan.
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. Also, VA refinances tend to have much lower funding fees associated with them. You can learn more about funding fees here.
Your going to have discount points on any type of mortgage, although they are not required. Discount points are a percentage that you can add to your total closing cost. By paying discount points, veterans 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 tons of small fees that your lender will charge you at closing. The total cost of these fees depends on the lender, the home and size of the mortgage. Some of the fees veterans will have to pay include the appraisal, the recording fee and the title.
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 to see.
If closing costs are going to be a concern, you can talk to your lender or 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, and this can run up your total closing costs pretty quickly.
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 2018.