VA Loan Closing Costs Paid by the Seller

Are you a veteran looking to buy a home? If so, you probably know how helpful the VA loan program can be. One benefit of the VA loan is that the Seller can contribute to the buyer's closing costs. This is a great way to save money, but knowing all the costs associated with VA loan closing is essential.

This article will cover everything you need to know about VA loan closing costs - from understanding how they work to negotiating with the Seller. Read on to learn more about VA loan closing costs and how they can help you save.

Understanding VA Loan Closing Costs

A VA Loan is a mortgage loan available to qualified veterans and active service members. VA Loans are backed by the U.S. Department of Veterans Affairs and offer certain benefits over traditional loans. One of the primary benefits is that the veteran or active service member does not need to pay for certain closing costs associated with the loan.

VA Loan closing costs can vary based on the purchase price of the home and the type of loan but typically include loan origination fees, title fees, appraisal, and credit report fees. These closing costs are typically paid by the Seller, rather than the buyer, through a process known as seller concessions. Seller concessions are allowed up to a maximum of 4% of the loan amount and must be negotiated with the Seller and approved by the lender.

How VA Loan Closing Costs Work

VA loans are an excellent option for veterans and military service members to obtain a mortgage loan. One of the benefits of this loan type is the ability for sellers to include closing costs as part of the negotiation. VA loan closing costs are fees for obtaining a mortgage loan, such as appraisal, title, and origination fees. The VA limits the amount a seller can pay towards a buyer’s closing costs, referred to as seller concessions. The seller can pay ALL closing costs for the buyer and up to 4% of the sales price toward the buyer's escrow and prepaid costs.

Benefits of Having Seller Pay VA Loan Closing Costs

For buyers with a VA loan, having the Seller pay your closing costs can provide significant benefits.

Seller concessions typically include closing costs, such as origination fees, appraisal fees, document preparation fees, and title/escrow fees. For buyers, this can mean significant savings of anywhere from $1,000 to $2,500. If a buyer has a constrained budget, having the Seller pay for their VA loan closing costs can often be the difference between being able to close on a home and not being able to afford it.

Factors That Affect VA Loan Closing Costs

VA loan closing costs can vary greatly depending on a few significant factors. These include the cost of the home, the state in which it's located, the fees associated with closing the loan, and the agreement between the Seller and buyer. Generally, the buyer is responsible for most closing costs, but the Seller can cover some or all closing costs on behalf of the buyer.

Depending on the situation, the Seller may pay up to 4 percent of the sales price toward the buyer's prepaid expenses.

VA Loan Origination Fees Explained

VA loans are a mortgage loan program offered to veterans, service members, and certain military spouses. Generally, when closing on a VA loan, the borrower will pay the closing costs, though sometimes the Seller can pick up some of the costs. This is known as a seller concession or seller-paid closing costs. There are a few essential items to consider regarding VA loan closing costs.

The VA loan origination fee is the fee a lender charges when originating the loan. This fee is used to pay for the lender's overhead costs and to cover the lender's servicing costs. The VA limits how much a lender can charge for this fee, up to 1.0% of the loan amount. This cost can be paid for in cash by the borrower or included in the total loan amount. Additionally, the Seller may provide a seller concession or seller-paid closing costs to cover this fee.

Appraisal Costs in VA Loan Closing

Regarding VA Loan closing costs, the Seller can pay some or all of the appraisal costs.

VA loans are popular for veterans, active-duty service members, and their families. The VA loan program offers several benefits, such as low or no down payments, lower interest rates, and flexible credit requirements. However, like any other mortgage program, VA loans also come with closing costs that borrowers must pay before taking possession of their new homes.

One of the closing costs associated with VA loans is appraisal fees. An appraisal evaluates the property's value by a licensed appraiser, ensuring that the property's value matches or exceeds the purchase price stated in the contract. Appraisal costs typically range from $300 to $500 but can be higher depending on location and property type.

In some cases, VA lenders may require additional appraisals if there are concerns about the property's condition or marketability.

Title Search and Insurance in VA Loan Closing

A VA loan closing includes a title search and title insurance, which the Seller pays in certain circumstances. The Seller can pay for the title search and insurance as part of their seller concession, and this seller concession type is considered part of the VA loan closing costs for the buyer.

VA Loan Discount Points

The Seller can pay VA loan closing costs as part of the seller's concession. This concession can be used for discount points for an ongoing VA loan and fees paid to lower the interest rate. This can help the veteran borrower save money on loans over time. Discount points require a one-time payment, and the amount of the points paid by the Seller is included in the seller concession. It is important to note that the veteran borrower will only be responsible for any remaining points after subtracting the seller concession amount.

VA Loan Funding Fees

VA Loans require the borrower to pay a VA Loan Funding Fee at closing. This fee is typically a percentage of the total loan amount and is intended to defray the cost of administering the VA Loan Program.

When it comes to closing costs, VA Loans are unique. The Seller can pay certain closing costs and VA loan underwriting fees, often called seller concessions. Closing costs that can be included within the seller concession are settlement and attorney fees, title fees, and recording fees. VA loan underwriting fees are included in closing costs and can be paid by the Seller. These fees are a small portion of the closing costs, typically ranging from $100 to $500.

Prepaid Taxes and Insurance in VA Loan Closing

The Seller may be responsible for some closing costs in a VA loan closing. Closing costs may include itemized prepaid taxes and insurance, which the Seller may be asked to pay as part of their concession. As a VA loan borrower, you may be able to negotiate that the Seller pay up to 4% of the sales price to pay the buyer's prepaid costs. These concessions may include prepaid taxes and insurance which may be advantageous for you as the buyer, as it will reduce the amount you must pay out of pocket for closing costs.

Negotiating VA Loan Closing Costs with the Seller

When buying a home with a VA loan, buyers can ask the Seller to cover all or a portion of their closing costs. Buyers should remember that while a seller can pay ALL closing costs and other fees on a VA loan, they can also pay for any of the borrower’s prepaid finance charges, such as prepaid interest being limited to 4% of the sales price. Understanding the difference between a seller's concession and closing costs and their limits is essential before negotiations.

Closing Disclosure Form for VA Loans

The Closing Disclosure Form is crucial in the home-buying process, which is no different for VA Loans. The form contains all the final details of your mortgage loan and provides transparency regarding costs and fees, and it will also outline any potential changes throughout the loan term.

For VA Loans, the Closing Disclosure Form should be provided to borrowers at least three days before closing. This gives them ample time to review it and ask any questions they may have about their mortgage loan. If borrowers notice any discrepancies or errors on the form, they can address them with their lender before closing.

To ensure that you receive an accurate Closing Disclosure Form for your VA Loan, it's essential to work with a reputable lender who understands the intricacies of VA Loans specifically.

Conclusion

In conclusion, VA Loan Closing Costs can vary significantly depending on several factors, including the VA Loan amount, the type of loan, and geographic location. Buyers should always understand the VA Loan Closing Costs paid by the Seller to minimize the cost of their home purchase.

Knowing the factors affecting VA Loan Closing Costs, such as VA Loan origination fees, appraisal costs, title search and insurance, discount points, VA Loan funding fees, underwriting fees, prepaid taxes, and insurance, can help buyers better negotiate with the Seller. VA Loan Closing Costs can be confusing, but buyers and sellers can navigate the process more quickly and efficiently with the proper education.

SOURCE:
VA Funding Fee and Loan Closing Costs
Chapter 8. Borrower Fees and Charges and the VA Funding Fee