VA Loan Closing Costs: What Fees to Expect

Compared to other mortgage programs, VA loan closing costs are fairly affordable. The U.S. Department of Veterans Affairs (VA) puts certain protections in place to keep homebuying costs reasonable for eligible military borrowers. Still, there are some closing costs that you’re expected to pay.

Here’s a closer look at what will impact your bottom line.

How much are VA loan closing costs?

Typically, you can expect to pay between 2% and 6% of the home’s purchase price in VA mortgage closing costs.

However, similar to other types of mortgage loans, the amount that you’ll pay in VA loan closing costs can vary based on your lender, the home you choose and other conditions.

  Need more help? Check out our list of the best VA lenders today.

How are VA loan closing costs different from other mortgages?

The cost structure for VA loan closing costs varies a bit from other mortgage programs in several ways:

You’ll pay a VA funding fee

The VA funding fee is unique to VA loans. It’s a one-time, upfront charge that’s paid to the Department of Veterans Affairs to help fund the program, while also easing the burden on taxpayers.

This fee can range from 0.5% to 3.3% of the loan amount and depends on a number of factors, including the type of VA loan transaction (purchase or refinance), if you’re making a down payment, the type of veteran you are and if you’ve previously used any VA benefits to buy a home.

Depending on the circumstances surrounding your service, you may qualify for a VA funding fee exemption, meaning that you won’t have to pay the fee.

Your home appraisal fee will likely be higher

Most mortgage loans require an appraisal to determine the home’s value. However, if you take out a VA loan, your new property will undergo a VA appraisal, which also involves evaluating the home’s condition. Due to these additional considerations, VA appraisals can often be more expensive than traditional home appraisals.

The fee can vary depending on your location and the type of property you intend to purchase. For example, the fee for a VA appraisal on a property in Vermont could range from $775 to $925, compared to $300 to $400 for a conventional appraisal.

You’ll have a 1% origination fee

Lenders typically charge an origination fee to cover the administrative costs that come along with processing a new loan. Again, these fees can vary, but if you’re taking out a VA loan, VA lender charges are capped at 1% of the loan amount.

You’ll avoid paying a handful of fees

In an effort to keep its loans affordable for military borrowers, the VA prohibits lenders from charging certain fees on its loans. Known as “non-allowable fees,” they include:

• Attorney fees
• Real estate commissions
• Prepayment penalties
• Inspection fees charged by the FHA/HUD

  Want to learn more about VA loans? Read our complete guide here.

Who pays closing costs on a VA loan?

The VA also regulates who can pay which closing costs. They fall into two buckets:

Costs covered by the buyer (or negotiated between the buyer and seller)

In general, the buyer can expect to cover these VA mortgage closing costs unless they can negotiate with the seller to cover them instead:

• VA funding fee
• Loan origination fee
• Discount points
• Credit reporting fee (and payment of any balances)
• VA appraisal fee
• Hazard insurance fees
• Real estate taxes
• State and local taxes
• Title search and title insurance fees
• Recording fees

Costs covered by the seller

The VA limits the amount of transaction costs that a seller can cover — often called “seller concessions” — to 4% of the home’s purchase price. However, within that 4%, there is some flexibility.

For example, if any of the following fees are charged, the seller must cover them:

• Real estate commissions
• Brokerage fees
• Buyer-broker fees
• Termite reports (unless it’s a mortgage refinance)

In addition, discount points and any negotiated closing costs won’t count toward the 4% limit.