If you have done some investigation into the workings of a VA loan, you’ve probably noticed that when it comes to closing costs, VA loans work a bit differently than a traditional home loan. Be it an advantage or an annoyance, one way or the other, as a veteran using a VA loan, you can only pay a portion of your closing costs. The other costs- terms non-allowable, will need to be paid for another way. If you’re a first-time buyer or moving up to your third home, the process can still be confusing.
The first step in the process would be to clarify what you’d still be responsible for, meaning, what closing costs you can still take care of on your own. Termed allowable VA closing costs, besides paid outside closing and prepaid financing costs (which can affect your APR), additional fees may include:
• Escrow, prepaid interest, property taxes and your homeowner’s insurance.
• Interest rate points (uncommon with a VA loan, but applicable)
• VA funding fees. These can be lumped into your monthly payment, or even paid for by the seller.
• Homeowners association fees if any.
• Additional charges for items such as pest inspection, credit reports, mandatory VA appraisal, home inspection (if you choose).
• Origination fees for the loan itself.
• Title exam and insurance.
• Survey fees if needed.
Lenders may choose to lump the additional costs into a 1% origination fee rather than itemize all the fees separately .
One of the benefits of your VA loan is the fact that while you are still responsible for some of the closing costs, there are some you cannot pay. These non-allowable fees may include :
• Lender documentation fees.
• Recording fees if they exceed $17.
• Notary fees.
• Transaction coordination fees.
• Broker fees.
• Termite inspection fees.
Finding out your exact closing costs can be a difficult task, simply because it relies on so many different factors. The first step is to fill out a full loan application with the lender. Some information needed will include things such as the address of the potential property. The lender than has a 3-day period where they can send a GFE, or good faith estimate with a general idea of what your costs may be, including closing. This is only an estimate, and in no way obligates you to use that lender or amount, but acts as a useful tool when it comes time to negotiate on the price of the home you are wanting to buy.
Who pays your closing costs is dependent on a verity of factors as well. Much of where the funds will originate depends on negotiations with lenders, the agent and the seller. Some important things to note is that the lender can pay any amount (including all) of your closing costs, and up to 4% of your total loan amount. While the seller is not obligated to pay any of your closing costs, it is common under a VA loan for the seller to pay some or all of your closing costs. Depending on the market in the area you wish to buy, the seller may be more reluctant if the demand is in their favor .
Negotiations are the biggest determiner of how your loan and payment is going to play out, and while guides and estimates are helpful, the ultimate result of your arrangements will be between you, the lender, your agent and the seller.