Unlike other mortgages, VA loans don’t require down payments or private mortgage insurance (PMI), so it’s understandable to think that they may not include closing costs as well. However, VA loans do require closing costs that the borrower is responsible for, so it’s important to know how much cash you need to have on hand.
In this article, we’ll break down VA loan closing costs, including who pays them and how much they are.
Who Pays Closing Costs on a VA Loan?
VA borrowers are responsible for paying closing costs on VA loans. In some cases, VA lenders will also cover a portion of closing costs, but this is typically only in exchange for a higher interest rate, which will likely end up costing you more over the life of the loan.
VA loans allow for seller concessions, meaning the seller can cover up to 4% of a VA borrower’s closing costs. While this option can significantly reduce what you need to pay upfront, it depends on the local market. In a ‘seller’s market’—where demand is high, and homes sell quickly—sellers may be less likely to offer these concessions. However, in the right conditions, VA borrowers could negotiate their way to a closing without paying anything out of pocket.
How Much Are VA Loan Closing Costs?
Many VA lenders state that closing costs vary from 2 to 6% of your loan price, but wide of a range can be challenging to prepare for. For example, the difference between 2% and 6% on a $300,000 loan is $6,000 vs. $18,000.
VA Home Loan Closing Costs
Now that you know how much VA closing costs can be, let’s break down what they consist of. As we stated earlier, VA loan closing costs vary slightly from other mortgages because the VA regulates the fees buyers pay for closing costs. They do this to help protect veterans and servicemembers from paying excessive fees.
The VA specifies certain fees that lenders can charge, known as “allowable fees.” Fees that lenders are not allowed to charge VA borrowers are called non-allowable fees.
Origination Charge
The origination charge is a fee charged by the lender for processing the loan. It covers administrative costs and services the lender provides during the mortgage process.
Lenders may charge up to 1% of the loan amount for origination or itemize each cost in their closing disclosure.
The origination fee can help cover the following lender charges:
- Loan application or processing fees
- Interest rate lock-in fees
- Document preparation fees
- Lender appraisals
- Postage costs
- Escrow or notary fees
- Tax service fees
- Loan closing or settlement fees
If the lender charges the full 1% origination fee, they cannot charge you additional fees for any of the above items. However, many lenders charge only a portion of the origination fee. In that case, they are allowed to charge additional fees as long as they are “reasonable and customary,” meaning the fees should align with what is typically charged in the local market.
VA Funding Fee
The VA funding fee is a mandatory fee charged by the Department of Veterans Affairs to help sustain the VA loan program. It varies based on your down payment amount, service status, and whether it’s your first or subsequent VA loan. Some veterans are exempt from this fee, such as those determined by the VA to have a service-connected disability rating. Be sure to check if you qualify for a VA funding fee exemption.
Many borrowers roll the funding fee into their VA loan amount, meaning it does not add to the closing costs and will be paid off over time along with the rest of the loan.
| Loan Type | No Down Payment | 5-10% Down Payment | 10%+ Down Payment |
| Purchase loan First VA loan Use | 2.15% | 1.5% | 1.25% |
| Purchase loan Subsequent VA loan Use | 3.3% | 1.5% | 1.25% |
| Cash-Out Refinance loan First VA loan Use | 2.15% | 2.15% | 2.15% |
| Cash-Out Refinance loan Subsequent VA loan Use | 3.3% | 3.3% | 3.3% |
| VA Streamline Refinance | 0.5% | 0.5% | 0.5% |
Other customary VA mortgage fees include the following:
- VA appraisal fee covers the cost of getting a VA appraisal on the home you’d like to buy. It is required to assess the property’s value and ensure it matches the listed value of the home. It also makes sure the home meets the VA’s standards of safe, secure and sanitary. The VA funding fee varies by state and county. You can find your VA funding fee by searching for the county you are purchasing in our guide here.
- Lender discounts are optional “points” that you can purchase to lower your interest rate permanently. The average discount point costs 1% of the loan amount per point in exchange for a reduction in interest rate by 0.25%.
- Credit report pulls cover the cost of obtaining your credit history from the 3 major credit bureaus: Experian, Equifax, and TransUnion. The average credit report pull costs $30 to $50 per applicant.
- Title charges are fees related to the title search and title insurance. The title search ensures that a property’s title is under the proper ownership and has no claims or liens against it. In contrast, title insurance ensures that the owner is protected from any title defects or disputes not discovered during the title search.
- Prepaid daily interest charges occur when there’s a gap between your closing date and your first mortgage payment. They ensure that your interest is covered from when you take ownership of the property until your first regular mortgage payment is due.
- Property taxes and Homeowner’s insurance are typically annual bills, but a portion of each is usually due at closing.
- Home Warranty Fees are optional service contracts for the repair/replacement of home systems and appliances. Costs range from a few hundred to over a thousand dollars per year and are payable at closing if you opt into one.
- Homeowners Association (HOA) fees typically apply if you purchase a property within an HOA. These fees cover the maintenance and management of common areas and amenities.
- Well, septic, and termite inspection fees are not always required, but if the property you’re purchasing has a well or a septic system, you may need to have them inspected to ensure they meet the required standards. These standards are generally state- and county-dependent. Additionally, a termite inspection is often required to check for any structural damage caused by these pests. The fees for these inspections depend on the location and the complexity of the inspections.
- Real estate commissions are typically paid by the seller and cover the fees for the real estate agents involved in the transaction. This fee is usually based on a percentage of the sale price.
- Recording fees, documentation fees, and postage should be covered by the origination fee unless lenders don’t charge the full 1%. Be sure to get an itemized list in writing before going to closing so you have a good idea of what you are being charged and whether or not the rates are reasonable.
Can I Roll Closing Costs into My VA Loan?
You can roll the VA funding fee into your loan amount, which means including it in the loan amount rather than paying it upfront. Many veteran homebuyers use this option to avoid the immediate financial burden associated with closing expenses; however, doing so increases their loan amount and monthly payments.
Other closing costs cannot be rolled into your VA loan, but some costs, including the origination fee, appraisal fees, property taxes, and more, can be covered by seller concessions. It is important to discuss these with your lender to find the best long-term option for you.
The Bottom Line
Understanding VA loan closing costs and ensuring you have enough cash saved up will help you have a less stressful homebuying process. Remember to consult with your loan officer and real estate agent to ensure a smooth and successful closing on your VA loan.
Equal Housing Opportunity. The Department of Veterans Affairs affirmatively administers the VA Home Loan Program by assuring that all Veterans are given an equal opportunity to buy homes with VA assistance. Federal law requires all VA Home Loan Program participants – builders, brokers and lenders offering housing for sale with VA financing – must comply with Fair Housing Laws and may not discriminate based on the race, color, religion, sex, handicap, familial status, or national origin of the Veteran.
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