VA Loan Closing Costs Paid by Seller

Can the home seller pay my closing costs? How much?

Closing cost graphicAre you in the market for a new home? If so, you may be wondering who pays the closing costs. It’s a common question, and the answer can vary depending on a number of factors. In this article, we’ll break down who typically pays closing costs when buying a home with a VA loan.

Closing Costs for the VA Home Loan Program

It doesn't matter if you're financing a home purchase with an FHA loan, USDA loan or a conventional loan, there will be closing costs. The amount of the closing costs vary from state to state and the counties within the state.

Allowable Seller Concessions for a VA Loan

Seller concessions are a common feature of VA loans, and allow the seller to contribute money towards the buyer’s closing costs. The home seller is allowed to pay all reasonable and customary closing costs on behalf of the buyer.

The home seller is also permitted to pay up to 4% of the home loan toward the buyer's prepaid expenses.

Here are some costs that you are likely to pay:

VA Funding Fee

Department of Veteran Affairs signThere is a one-time cost that must be paid to the Department of Veterans Affairs known as the VA funding fee. This charge may vary from 0.5% to 3.6%, depending on the kind of loan, the number of times you've used a VA loan in the past, and how much of a down payment you have that is larger than 5%. The price that is paid by the majority of Veterans is 2.3%.

Although the VA requires the vast majority of borrowers to pay the VA financing fee, this is not the case for every borrower. There are a few exceptions to this rule, the most notable of which are for borrowers who are receiving compensation for service-connected disability. You can see the full list of exemptions on this page.

Although the majority of borrowers are required to pay the VA financing fee, not every borrower is required to do so. Some applicants are exempt from this fee.

Read more about the VA funding fee

VA Funding Fee Exemption

Veterans and their surviving spouses are free from paying the funding fee if any of the following conditions is met:

  • Compensation for a service-connected disability, whether they are already receiving such compensation.
  • A veteran's surviving spouse who died either while serving or as a result of a service-connected disability
  • A member of the armed forces who has been awarded a Purple Heart.

1% Loan origination fee

A borrower may be charged an origination fee by their lender. It may be a one-time flat cost or the total of a number of different fees linked to the loan. Your lender is only allowed to charge you one percent of the loan amount, and that one percent will cover the expenses associated with processing, underwriting, and initiating your loan. If you want to buy a property that costs $300,000 and finance it, the maximum a lender may charge you in interest is $3,000.


Discount points

You have the option to buy down your interest rate by paying for discount points at closing.

Read more about discount points

Appraisal fee

Appraisal graphicThe appraiser is usually hired by the lender, but the VA appraisal fee is often paid by the borrower as part of the mortgage closing fees (unless the seller agrees to pay it). The purpose of the appraisal is to determine the value of the property and to consider the overall condition of the home.

The VA regulates how much appraisers may charge. The maximum amount that may be charged for an assessment varies from one state and even county to the next. The maximum VA appraisal costs for single-family houses, condominiums, and prefabricated homes may vary anywhere from $425 to $875 throughout the country. Appraisers have the right to request authorization to charge additional fees in order to compensate for the increased time and distance traveled while conducting complicated property evaluations.

Inspection fees

You might be surprised to learn that the VA does not need a home inspection. A significant number of borrowers are under the impression that the VA would send their very own inspector to evaluate the condition of the property. However, this is not the case. Borrowers are strongly encouraged by the VA to have a home inspection before closing on their loan. If you decide to have a home inspection, the fee is paid directly to the inspector and isn't included in the closing costs.

Title insurance fees

The borrower and lender are protected by title insurance against unforeseen issues such property boundary disputes, unpaid real estate taxes, fraud, forgeries, etc. The cost of title insurance varies from state-to-state. Additional fees are possible, such as a title search, are possible.

Recording fee

The closing agent will deliver the various documents that you and the seller have signed to the county's recorder, who will formally recognize the title transfer and register the loan documents.

Credit report fee

You will be charged a small fee for a full credit report.

Flood certification fee

A flood report will be obtained by the lender. This will inform you whether your new house is in a flood zone; if it is, you'll need to buy a specific kind of insurance for it if it's in a flood zone.

Survey fee

In many places, a surveyor will come out to your new property and define the borders of it so that you will know precisely what it is that you are purchasing. It's possible that you won't have to pay for the survey.

Attorney’s fee

Some states require an attorney's supervision of sale and title transfer.

Prepaid items

You may be familiar with the phrase "prepaid costs.” A “prepaid” fee, such as a homeowner's insurance policy, that is paid in advance or at closing. Taxes on real estate are prepaid expenses. The lender will create an escrow account for the payment of property taxes.

Mortgage and or transfer tax

Some states charge a transfer tax on real property. In Pennsylvania, the cost is usually 1% of the purchase price. Some states (or counties) require this charge. Some states do not.

A few states charge a mortgage tax. New York and Maryland are examples of states that charge a mortgage recordation tax.

There are certain costs that are not associated with every loan.

Does the Buyer Pay Closing Costs on a VA Home Loan?

Man holding a who pays signAs a general rule, the buyer is responsible for paying closing costs on a VA home loan. However, there are some circumstances in which the seller may pay some or all of the buyer's closing costs. For example, if the sale price of the home is low relative to its market value, the seller may be willing to pay some of the buyer's closing costs in order to make the deal more attractive.

Can the Seller Pay Closing Costs on VA Loan?

As a general rule, the buyer is responsible for paying closing costs on a VA loan. However, the seller can pay some or all of the Veteran's closing costs. If the seller is motivated to sell, they may be willing to negotiate and pay some or all of the buyer's closing costs. This can be a win-win for both parties as it can help make the deal go through while also saving the buyer money.

The fact that the seller may pay for all of your loan-related closing fees is one of the most significant advantages of VA loans. Because they are not obligated to pay any of them, this is something that the buyer and the seller will always work out between themselves via discussion.

Additionally, you have the option of requesting that the seller pay up to four percent of the purchase price in "concessions." These "concessions" may be used to cover expenditures that are unrelated to the loan, as well as additional fees.

The VA defines seller concessions as "anything of value added to the transaction by the builder or seller for which the buyer pays nothing further and for which the seller is not normally expected or required to pay or provide."

Can VA Closing Costs Be Financed?

This is one of the most widespread misunderstandings that exists within the mortgage industry. You may have overheard a friend or family member talking about how they were able to roll their closing fees into their mortgage loan; however, this is not completely accurate. They were able to secure either a seller credit, which is when the seller agrees to pay the costs because they sold the house for more than the market value. Or the closing costs were paid with a lender credit. Lenders will pay the closing costs in exchange for a higher interest rate. This really means that they sold the house for more than the market value, which is why the seller agreed to pay the costs.

The only closing cost that can be financed is the VA funding fee.

How Does a VA Loan Affect the Seller?

Man shaking hands with the sellerThe VA home loan is just like any other loan type. There are no additional fees charged to the seller on behalf of the buyer.

When it comes to VA loans, there are a few things that can affect the seller of a home. One of those things is closing costs. While the buyer is usually the one who is responsible for paying the closing costs associated with their home loan, there are some circumstances where the seller may be responsible for some, or even all, of the closing costs.

One reason is if the seller has agreed to a seller concession. A seller concession is an agreement between the buyer and seller where the VA loan closing costs will be paid by the seller. This is typically done in order to help the buyer afford the home.

Speak to your real estate agent and loan officer for further guidance on a seller concession.

Conclusion

In conclusion, the VA loan is a great option for eligible veterans when buying a home. One of the benefits of this loan is that closing costs can be paid by the seller. This can be a huge help when coming up with the money for a down payment and other associated costs. If you are a veteran looking to purchase a home, be sure to ask about the VA loan and if it is right for you.

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

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