When you are using a VA loan, you don’t have to worry about the headache of a down payment. While this alone is a fantastic opportunity for many military and veteran buyers, there are some other benefits that come along with using a VA loan. When it comes to closing costs, there are certain costs that the veteran does not have to pay.
Which fees do I pay?
The next question is, which costs do I need to pay? You will generally need to pay for the appraisal, a credit report, title insurance, an origination fee, a recording fee, and a survey fee. Using the Acronym ACTORS may help you remember what fees you can be responsible for: Appraisal, Credit, Title, Origination, Recording, Survey.
These fees are common, and chances are, you’ll find them on just about every VA mortgage. These fees will fall under the responsibility of the buyer. There are however, a series of closing costs that are not paid for by you, as a qualified buyer. You are not required to pay attorney fees, underwriting fees, escrow, processing, documentation, or tax service fees. These are considered “non allowable”.
While these fees are required as part of a mortgage, the veteran will not be responsible for paying them.
How Are The Non Allowed Fees Paid?
The seller can pay the non-allowable closing costs depending on what the routine is for dealing with the charges. As an example, the buyer can negotiate to pay an agreed amount on the home, as long as the seller agrees to a percentage of the closing costs (equal to the amount of the non allowable fees). While considered a seller concession, keep in mind that the seller is limited to a cap of 4% of the cost of the house. This 4% can be put towards some of these closing costs.
Your agent may opt to offer a credit at closing to take some of the pressure off the closing costs. Your agent will get his or her commission at close courtesy of the seller represented as a percentage of the cost of the sale price of the house.
If there are both listing and selling agents (the representative for each transactional party), the commission is usually divided between the two. As a caution, some states prohibit the practice of letting the agent provide funding towards the buyer costs, be aware of any stipulations within your buying zone.
The lender can also pay these fees in the form of a lender credit. Adjusting the interest rate to account for the fees is how this is generally accomplished. As an example, if you have a 30-year mortgage at 3.75 %, you may have the choice to either choose a 3.75% with no points, or take the point but reduce the rate down to 3.50%. Conversely, the lender can offer a 4.00% and give a credit to the borrower. The lender can increase the interest by .250 of a percent and credit the amount to the borrower to use towards closing.
In some cases, the lender can allow the borrower to pay the fee in the form of an increased rate of an allowable fee. For example, the lender may charge a 1% origination fee in place of an itemized list of non-allowable fees.