VA Loan Closing Costs: How Much You’ll Pay
If your military service makes you eligible for a home loan backed by the U.S. Department of Veterans Affairs (VA), you’ll find VA loan closing costs differ significantly from other mortgage programs. Some fees are unique to VA loans, and there are built-in protections to keep active-duty service members, veterans and eligible surviving spouses from paying too much for a mortgage.
Knowing how VA loan closing costs work, who pays them and which fees you aren’t allowed to pay may save you money at the closing table.
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How much are VA closing costs and fees?
You’ll typically pay between 2% and 6% of your loan amount toward closing costs on most mortgage loan programs. However, VA loan guidelines set restrictions on the types of fees you can be charged and lender fees can’t exceed 1% of your loan amount.
You’ll also pay a fee unique to VA loans: the VA funding fee. This fee is expressed as a percentage of your loan amount and ranges from 0.5% to 3.6%. It’s used to offset the taxpayer cost of the VA loan program and the amount charged varies based on three factors:
- Your down payment.The higher your down payment, the lower the funding fee.
- Whether you’re buying or refinancing.A higher down payment will reduce your funding fee if you’re buying a home; meanwhile, a regular refinance or VA cash-out refinance requires higher funding fees. However, the VA interest rate reduction refinance loan (IRRRL) only requires a 0.5% funding fee.
- Whether you’re using your benefits for the first time.You’ll pay a lower VA funding fee the first time you use your VA mortgage benefits. The fee goes up for every subsequent no down payment or VA refinance loan you take out.
The VA periodically adjusts the VA funding fees — the chart below shows the most current VA funding fee schedule:
|Purpose of loan||Down payment||First-time user fee||After first-use fee|
|Purchase||5% or more||1.65%||1.65%|
|Purchase||10% or more||1.40%||1.40%|
|Cash-out or regular refinance||90% maximum loan-to-value (LTV) ratio||2.30%||3.60%|
|Interest rate reduction refinance loan (IRRRL)||No equity required||0.5%||0.5%|
What VA loan closing costs do I pay?
The following is a list of VA loan closing costs that you may have to pay:
- VA funding fees based on the chart above
- Origination fees charged by your lender for approving your loan
- Mortgage points paid to get a lower rate
- Credit report fees and the balance of any credit card or judgements you must pay to qualify
- VA appraisal fee to confirm the value of your home
- Homeowners insurance to protect you against hazards like fire, theft or vandalism
- State and local property taxes
- Title insurance to protect you against claims by prior owners of the home you’re buying or refinancing
- Recording fees to update public records of liens or ownership changes to your home
How are VA loan closing costs paid?
There are four ways to pay allowable closing costs on a VA loan:
- Ask the seller to pay them. Your seller can pay costs equal to 4% of your sales price. This is called a “seller concession” and can include the VA funding fee.
- Roll them into your loan. VA funding fees are automatically added to your loan balance on a purchase loan unless you decide to pay them out of pocket. You can usually roll origination fees and other closing costs to your loan balance on a VA refinance.
- Ask about a no-closing cost option. Lenders may offer to pay your costs if you’re willing to pay a higher interest rate, which is also known as a “no-closing-cost loan.” One caveat: The money you save at closing is offset by a higher monthly payment and more interest charges over the life of your loan.
- Get a gift from a relative. The VA does allow you to get a gift from a close friend or family member. The person giving the money must complete a gift letter and document the account the funds are gifted from.
How VA closing costs are different
VA loans are designed to provide affordable mortgage financing options to military service members. There are some unique differences between VA closing costs and closing costs you’d normally pay with a conventional mortgage or one backed by the Federal Housing Administration (FHA). Here’s a brief overview of the major differences.
There is no mortgage insurance requirement
Most conventional require private mortgage insurance (PMI) if you make less than a 20% down payment to protect the lender in case you default on the loan. FHA loans require two types of FHA mortgage insurance regardless of your down payment.
There are fees you’re not allowed to pay
The VA sets rules about “non-allowable” costs that can’t be charged to VA borrowers. Below is a list of some of the fees VA borrowers are not allowed to pay:
- Attorney fees
- Real estate agent commissions
- Prepayment penalties
- Inspection fees required by government agencies
- Appraisal fees requested by someone other than the veteran
Lender fees are capped at 1% of your loan amount
To keep VA borrowers from being overcharged, lenders cannot charge an origination fee equal to more than 1% of the total loan amount.
Below is a list of standard closing costs that lenders must fit within the 1% origination limit:
- Settlement and document preparation fees
- Rate lock costs
- Postage and mailing charges
- Escrow and notary fees
- Loan application or processing fees
- Tax service fees and other fees charged by loan brokers or third parties
VA appraisals are more expensive
VA-approved appraisers have to ensure a home is safe and habitable and meets minimum property standards set by the VA. The inspection process requires a more detailed report on not just the home’s value, but the condition of every component of the home, from foundation to roof. The extra work results in VA appraisal fees that range from $500 to as much as $1,200 — compared to $300 or $400 for a conventional or FHA appraisal.
VA loan closing costs frequently asked questions
Can I negotiate VA closing costs?
Yes, you can and should negotiate closing costs on your VA loan. Some lenders specialize in VA loans and may offer special incentives toward your costs to earn your business.
How can I avoid closing costs with a VA loan?
You may not have to pay a VA funding fee if you have a disability related to your military service. You can check your Certificate of Eligibility to see if you’re exempt.
Who pays closing costs on a VA loan?
You can pay VA closing costs from your own funds, with a concession from the seller or with a lender credit from your mortgage company.
Are closing costs different for a VA purchase versus a VA refinance?
Yes. You’ll pay a lower funding fee on a VA purchase with a down payment 5% or more. There’s no reduced funding fee for a VA regular or cash-out refinance — however, if you’re eligible for the VA IRRRL, you’ll pay the lowest VA funding fee and won’t need a VA appraisal.