VA Loan Closing Costs 2021 | Average Fees & Who Pays


Tim Lucas
Military VA Loan editor

VA Home Loan Closing Costs and Fees: What to Expect

A down payment is not required on VA loans. However, the borrower is responsible for closing costs.

VA loan closing costs average around 1 to 3 percent of the loan amount on bigger home purchase prices, and 3 to 5 percent of the loan amount for less expensive homes.

You can pay them out-of-pocket or receive seller concessions and/or lender credits to cover them.

Get A Closing Cost Estimate. Click Here (Oct 26th, 2021)

In this article:


How to avoid paying closing costs out of pocket

Closing costs — also called closing fees — include a variety of charges that make buying a house possible.

They cover everything from the lender’s administrative fees to getting a head start on next year’s property taxes and insurance premiums.

Traditionally, it’s the homebuyer’s job to pay most of a loan’s closing costs, but it is possible for VA loan borrowers to avoid these expensive charges by:

Asking for seller concessions

The VA loan program allows the seller to pay up to 4 percent of the home’s price in closing costs. The seller isn’t required to pay that much.

If you’d like the seller to help cover your closing costs, be sure to let your real estate agent know before you negotiate a purchase contract.

Applying for closing cost assistance

A local closing cost assistance program in your area could help. These programs vary a lot by location.

Some programs offer forgivable loans or grants that could cover your closing fees; others can lend money for closing costs at no interest but you’d have to repay the loan when you sold, refinanced, or paid off your home.

Ask your loan officer about programs in your area, or just Google “local closing cost assistance.”

Financing the closing costs

The VA loan program lets borrowers roll some closing costs into the new loan itself. This can solve the problem: You won’t have to come up with closing costs out of pocket.

But financing them will add to your loan amount and total interest due over the life of the loan.

Asking for lender credits

Your lender could help pay closing costs in exchange for charging you a higher mortgage rate over the life of your loan.

Basically, lender credits resemble financing the closing costs into your loan amount: You’ll get upfront relief in exchange for higher long-term costs.

What are closing costs?

Closing costs pay for a lot of the professional services you’ll need to transition into homeownership. We’ll go into more detail below, but here’s a quick overview of your VA loan closing costs:

  • VA funding fee: This one-time fee helps pay to maintain the VA home loan program
  • Loan origination fee: Private lenders charge this fee to pay for their administrative services
  • Discount points: You have the option to buy down your interest rate by paying for discount points at closing
  • Appraisal fee: To finalize a loan, the lender has to find your new home’s value through an independent appraisal
  • Inspection fees: The VA has to inspect the home you’re buying to make sure it’s safe and sound
  • Title report fees: The loan process includes finding out if anyone else can claim ownership of the home. You’ll have the option to buy title insurance which can help settle future title claims if any arise
  • Recording fee: Your local government will charge this to record your home purchase
  • Credit report fee: Your lender will be charged a small fee for running your credit, and it passes the fee along to you
  • Flood certification fee: This will determine whether your new home is located in a flood zone; if it is, you’ll need to get special flood insurance
  • Survey fee: In many areas, a surveyor will come out and mark the boundaries of your new property so you’ll know exactly what you’re buying
  • Attorney’s fee: An attorney will manage and organize the details of your real estate transaction
  • Prepaid items: You may need to pay part of your local property taxes or annual homeowners insurance premiums upfront; these charges will be worked into your monthly payment for future

Not every loan will require every cost. For example, if you’re getting a VA streamline refinance for your current VA loan, you can skip the inspection and appraisal fees because you paid for them the first time around.

Some closing costs, like the VA funding fee and the loan origination fee, are based on your total loan amount while others are flat fees charged on any loan amount.

We’ll take a closer look at the various types of closing costs in the next section.

How much are VA loan closing costs?

VA loan closing costs are typically 1-5% of the loan amount. So for a $200,000 mortgage loan, closing costs could be anywhere from $2,000 to $10,000. Part of the reason VA closing costs vary so much is that the VA funding fee can be anywhere from 0.5% to 3.6% of the loan amount depending on your loan type.

Below are some rough estimates of closing costs amounts for a VA loan. Keep in mind the types of fees and their amounts vary greatly by geographic location. Your scenario might look very different.

The best way to get a better estimate is to talk to a loan professional about your situation. But the following will give you a general idea of potential costs.

We’ll break the closing costs down into three categories:

  • VA and lender fees
  • Third-party fees
  • Pre-paid and prorated charges

VA mortgage fees and lender fees

The VA limits the amount of fees the lender can charge. This is a great benefit of this type of loan.

VA and VA-authorized lending fees include:

VA funding fee

  • Amount: Percentage of loan amount
  • Paid to: The Department of Veterans Affairs

This fee goes directly to the Department of Veterans Affairs to defray the costs of the VA loan program.

For a first-time homebuyer putting down less than 5%, the VA funding fee would be 2.3% of the total loan amount. On a $200,000 home, 2.3% equals $4,600.

Repeat homebuyers pay higher fees, but refinances through the VA’s Interest Rate Reduction Refinance Loan (IRRRL) require only a 0.5% funding fee. You can also pay a lower fee by making a down payment of 5% or higher.

But most veterans don’t pay this fee out of pocket. Usually, VA homebuyers choose to finance this fee into their loan amount. In that case, it doesn’t increase out-of-pocket costs for the veteran or active duty military service member.

This fee can be different for members of the National Guard; it can also be waived for veterans who were disabled in the line of duty or surviving spouses of combat veterans killed in action. Also, active duty service members who have received a Purple Heart won’t have to pay this fee.

First-Time Use Purchase & Construction Loans

Down Payment Veteran/Active Duty Reservist/Nat. Guard Eligibility
Less than 5%* 2.3% 2.3% Check Eligibility
5% to 9.99% 1.65% 1.65% Check Eligibility
10% or more 1.4% 1.4% Check Eligibility

*Including cash-out refinance loans

Second Time Use Purchase & Construction Loans

Down Payment Veterans/Active Duty Reservist/Nat. Guard Eligibility
Less than 5% 3.6% 3.6% Check Eligibility
5% to 9.99% 1.65% 1.65% Check Eligibility
10% or more 1.4% 1.4% Check Eligibility

*Including cash-out refinance loans

VA Streamline Refinance / IRRRL (Interest Rate Reduction Refinance Loan)

Type of Loan Veteran/Active Duty Reservist/Nat. Guard Eligibility
First-time Use 0.50% 0.50% Check Eligibility
Second-time Use 0.50% 0.50% Check Eligibility
Request a free VA loan rate quote here (Oct 26th, 2021)

For detailed information about the funding fee, visit our funding fee page.

Loan origination fee

  • Amount: Can’t exceed 1% of the loan amount
  • Paid to: The VA-authorized private lender

The VA caps the lender’s compensation on VA loans to 1% of the total loan amount. This fee is meant to compensate the lender in full. Fees for items such as processing and underwriting may not be charged if this 1% fee is charged to the veteran.

For a $200,000 home loan, 1% equals $2,000.

Get A VA Loan Rate Quote Here (Oct 26th, 2021)

Discount points

  • Amount: 1% of the loan amount buys a 0.25% rate reduction
  • Paid to: The VA-authorized private lender

Discount points let the borrower pay cash up front for a lower mortgage rate for the life of the loan. This is optional, but it can save money if you keep the home loan long enough to benefit from the lower rate.

Discount points don’t count toward the 1% maximum origination fee because this money is used to buy a lower interest rate rather than to compensate the lender.

Discount points can’t be financed into your loan amount unless you’re refinancing. For an in-depth look at origination fees and discount points, see our Discount Points article.

Third-party fees

Companies (other than the lender and homebuyer) that are involved in the transaction are called third parties.

Examples are title and escrow companies, credit reporting agencies, and appraisers. Their charges are called third-party fees. Here are common fees and estimated amounts.

Appraisal

  • Amount: Varies by region but can’t exceed $875 for single-family
  • Paid to: Passes through the lender to the appraiser

The lender will request an appraisal straight from the VA website, and the VA will then select an approved VA appraiser.

The VA appraiser will determine the value of the home as well as ensure it meets minimum property requirements for VA loans.

If you are using a VA streamline to refinance your home, an appraisal is not required and this fee will not apply. If your lender is requiring an appraisal on a VA streamline refinance, shop around for another lender.

Check Today's VA Home Loan Interest Rates (Oct 26th, 2021)

Title Report/Title Insurance Policy

  • Amount: Varies widely, usually between $300 and $1,500
  • Paid to: Passes through the lender to the service provider

This fee varies greatly because it is based on the purchase price of the home, the loan amount, and geographic location.

The title fee on a small purchase price may be only a few hundred dollars, while a high purchase price can soar well over $1,000.

The title report and title insurance protect the lender and owner of the home in case someone claims ownership rights to the house, and wins in a court of law. If that were to happen for any reason, the title insurance company would reimburse the lender and owner of the home for the loss.

There are generally two types of title fees:

  1. The lender’s title policy which protects the lender
  2. The owner’s policy which protects the future owner

In some areas, the seller of the home pays for the owner’s title policy, and the buyer pays the lender’s policy. But it depends on local customary practice.

Generally, the owner’s title policy is more expensive. In some cases, the buyer pays for both the owner’s policy and the lender’s policy, in which case the title fee more than doubles.

For instance, if the lender’s title policy is $450 and the owner’s title policy is $650, and the buyer has to pay them both, it would turn out to be an $1100 fee. Make sure your purchase and sale contract defines which parties are paying which fees so there are no surprises at the end.

Recording Fee

  • Amount: Varies widely, usually between $20 and $200
  • Paid to: County or city government

This fee is set by the county or jurisdiction where the home is located. “Recording” means that the sale or refinance becomes public record so that the county knows who is responsible to pay taxes on the home and which banks have loans out on the home.

Credit Report Fee | $35

  • Amount: $35 to $45
  • Paid to: Passes through the lender to the service provider

The lender must pull a credit report to determine your past credit history. The report usually shows three credit scores from the major credit bureaus — Experian, Equifax, and Transunion — and the middle score is used for qualification purposes.

If you’re wondering if you can qualify for a VA loan with your credit score, contact us here.

Flood Certification

  • Amount: $20
  • Paid to: Passes through the lender to the service provider

The lender will pull a flood certification, or “flood cert,” on the property to determine whether it’s in a flood zone. Most properties are not in a flood zone. But if yours is, you will need to purchase flood insurance (see “Prepaid Items” section below).

Survey Fee

  • Amount: $300 to $400
  • Paid to: Passes through the lender to the surveyor

A company will survey the property to show you where all physical property lines are on the property. This is not typically required in many areas of the country unless there are property line disputes or questions about boundaries.

Attorney Fees | $400+

  • Amount: $400 to $1,000
  • Paid to: Your closing attorney

Attorneys can help in negotiating and interpreting the sales contract as well as help with a timely closing. They are not required in every state. In states that require them, it’s best to call around and find an attorney who knows real estate and is not too expensive.

Note that the VA does not permit the veteran to pay an attorney for anything besides title work.

Prepaid items

Prepaid items are those which the buyer pays in advance. Lenders require insurance policies and taxes to be paid when the home purchase closes.

Unpaid taxes and insurance can lead to the home being seized by the government or destroyed by fire without compensation, both of which are bad for the lending bank (and you).

Flood Insurance | $300 – $1000+

  • Amount: $300 to $1,000+
  • Paid to: Insurer

This is an ongoing insurance policy, paid every year, on any home that is located inside a flood zone. The lender requires the home to be insured against flooding, which is not covered by the standard homeowner’s insurance policy.

You will pay the policy’s first-year premium at closing, which could add quite a bit to your upfront cash requirement. The insurance is based on the value of the home being insured, so it can vary greatly.

If the property is in a flood zone, determine the yearly premium and have that much extra on-hand by the time you close the loan.

Check Today's VA Loan Rates (Oct 26th, 2021)

Homeowner’s insurance

  • Amount: $400 to $1,500+
  • Paid to: Insurer

This is the standard insurance policy that protects against perils like fire, trees falling on the home, tornadoes or other natural disasters.

This insurance policy will not cover flooding and may or may not cover earthquake-related damage. The cost is based on the value of the home being insured. The full year’s premium will be due at closing.

The lender requires this prepayment because they want to make sure any damage done to the home will be repaired. Homeowner’s insurance is just like any insurance policy — it renews every year and will need to be paid again each year.

Usually, the lender collects 1/12th of the yearly premium with the mortgage payment and pays the insurance company for you yearly.

Escrow deposit

  • Amount: $400 to $2,500+
  • Paid to: Escrow account managed by the mortgage company

Your mortgage loan servicer will set up an escrow account to collect your property tax and insurance premiums gradually over the course of each year. This one-time fee creates an adequate opening balance for your new escrow account.

This fee varies greatly because it is determined by:

  1. The taxes and insurance rates on the home
  2. The time of year the sale closes
  3. When taxes are collected in the property’s jurisdiction

This money “primes the pump” so to speak so that when your property taxes and insurance come due, there’s enough in reserve to pay them.

To best plan for this upfront expense, you’ll need to get an estimate from your loan professional after the property is chosen and an estimated closing date is established.

Check Today's VA Loan Rates (Oct 26th, 2021)

Fees not allowed to be charged to the veteran

The Department of Veterans Affairs seeks to protect VA homebuyers from exorbitant fees. Some fees are not allowed to be charged, per VA loan program guidelines.

Related Article: Lowering Your Payment with a VA Streamline Refinance

Additional attorney fee

The VA loan program won’t allow the homebuyer to pay an attorney for anything other than title work. However, the seller or a Realtor can pay an attorney for additional services.

Escrow fee

The VA does not allow the veteran to pay an escrow fee. The escrow fee varies greatly and can be quite expensive, so this is a great benefit to the VA loan.

Although the veteran does not pay for the escrow fee, it’s good to know what the escrow company does.

The escrow company simplifies a real estate transaction by collecting and spending money on behalf of everyone involved.

For example, instead of paying your earnest money directly to the buyer, you’ll pay the escrow company. At the right time, the escrow service will forward your payment onto the buyer.

In addition, the escrow company makes sure all parties sign all the final loan documents and sale documents. When it’s all said and done, the escrow company sends documents to the county or jurisdiction to record the sale.

Closing Protection Letter (CPL)

The CPL fee is often included in the escrow fee but is sometimes charged separately. It is a letter that makes the title company responsible if escrow does not appropriate loan proceeds correctly.

Document preparation fee

The fee charged by escrow for preparing final loan documents can’t be passed on to the VA homebuyer.

Underwriting fee (processing fee)

In addition to the loan origination fee, lenders tend to charge processing and underwriting fees. The VA won’t allow lenders to charge these fees. Instead, all lender fees must be included in the 1% loan origination fee the VA does allow.

Lock-in fees

Lenders normally charge a small fee to lock in an interest rate in the days or weeks before closing on the loan. The VA won’t let lenders pass this fee along to its homebuyers.

Real estate commissions

The VA won’t let buyers pay real estate commissions for either the buyer’s or the seller’s agent.

Termite letter

It’s the seller’s responsibility to prove the home is free of termites so the VA won’t allow homebuyers to pay for this.

Lock In A Low VA Home Loan Interest Rate Here (Oct 26th, 2021)

Courier fee/postage fees

Sometimes there are original documents that need to be hand-carried or sent via overnight service, and can’t be emailed or faxed. In this case, the escrow company will often charge a courier fee to ensure these services are paid for.

The veteran is not allowed to pay these fees, however. They must be covered by the lender.

Notary fees

Fees charged by the escrow company to send a notary to the borrower for a signing appointment somewhere other than the escrow company’s office.

Application Fee

This is a fee the lender sometimes charges upfront before the borrower takes an application. This is not allowed on VA loans.

When you apply for a VA home loan, you can rest assured the VA-approved lender won’t charge you an application fee.

Tax service fee

This fee is paid to the mortgage company to ensure they pay the real estate taxes.

Mortgage broker fee

Sometimes charged by mortgage brokers when they broker a loan out to the lender.

This list of allowable and non-allowable fees above is not all-inclusive and there may be other fees on your purchase transaction that are not listed here. In that case, it’s best to contact your VA lender to find out if the charge is allowable on VA loans.

VA loan closing costs FAQ

How much are closing costs on a VA loan?

Closing costs range from about 1 percent to 5 percent of your home’s purchase price. Costs vary widely because some closing fees are flat while others are charged as a percentage of your loan amount.

What is the VA funding fee?

The VA funding fee helps pay for the VA loan program. The fee helps insure lenders, allowing them to give veterans and active duty service members competitive interest rates without requiring a down payment or ongoing mortgage insurance.

Will I have to pay a VA funding fee?

Most VA homebuyers will pay the VA funding fee, but the VA will waive the fee for disabled veterans who were injured in the line of duty or surviving spouses of veterans killed in the line of duty. Purple Heart recipients who are on active duty can also buy a home without paying the fee.

How can I avoid closing costs on a VA loan?

You can’t avoid closing costs, but you can avoid paying them out of pocket by asking for seller concessions, applying for an assistance program, or financing them into your loan amount.

Why do sellers hate VA loans?

The VA protects homebuyers from excessive costs by regulating real estate transactions. Sometimes sellers interpret the VA’s regulations as too complex or restrictive. However, this should not deter homebuyers who qualify for the VA loan benefit from using it.

What closing cost can a VA buyer not pay?

The VA won’t allow buyers to pay attorney fees beyond title work, sales commissions for real estate agents, termite remediation letters, and lender’s fees beyond 1% of the loan amount.

What credit score is needed for a VA loan?

The VA doesn’t set a minimum credit score but lenders do. Typically, you’d need a credit score of 620 to borrow, though some lenders make exceptions.

Can a VA loan be denied?

Yes, a lender can deny a VA loan application. The VA insures loans, making them more attractive to private lenders. But the VA can’t require a lender to approve a loan.

Can you roll closing costs into a VA loan?

Yes. Borrowers can finance most closing fees into their loan amount. However, the VA won’t allow discount points to be financed except on cash-out and streamline refinancing loans.

Can a VA buyer pay their own closing costs?

Yes, VA homebuyers can pay their own closing costs within rules set by the Department of Veterans Affairs. For example, buyers can’t pay for real estate agent commissions or attorney fees beyond title work.

Does the VA cover closing costs?

The VA does not pay closing costs on behalf of borrowers, but homebuyers can apply for closing costs assistance through local programs.

Who pays closing costs on a VA loan?

Homebuyers are responsible for paying closing costs, but they can ask for help from the seller who is allowed to pay up to 4% of the loan amount toward closing costs. Closing cost assistance programs and lender credits can also help. Or, the borrower can finance most of the closing costs into the home loan amount.

How can I get more information about VA home loans?

The best way to find out if you qualify to buy a home with a VA loan is to request a rate quote. Call (866) 317-2815 or simply complete our online form.

Click Here For Today's VA Rates (Oct 26th, 2021)

Here are some links to additional information:

Source: VA Handbook