The borrower's benefits on housing loans backed by the Veterans Administration include no down payment requirements and the ability to negotiate rates with lenders. Additionally, qualified VA borrowers are not required to buy mortgage insurance since the loan is guaranteed. Borrowers may even use home-finding agents to locate properties so long as they do not charge buyers for commissions. Veterans and spouses can qualify for purchase loans, rate-reduction refinance loans, and cash-out refinancing. The government regulates the closing costs for both borrowers and lenders, so it's good to know what fees are included and which ones veterans have to pay.
VA Borrower's Responsibilities
According to the VA, the borrower may pay for:
- VA Appraisals (re-appraisals). However, the borrower may not be allowed to pay for appraisals by the owner to re-asses valuation.
- Recording Fees and recording taxes
- Origination Flat-charge Fee (maximum one percent of the loan amount)
- Credit Report (for the lender)
- Title Insurance/title examination, including environmental protection lien, if required
- Hazard/flood Insurance
- VA Funding Fee*
*The VA Funding Fee is a one-time charge on new mortgages or refinance loans. The VA allows the borrower to pay it up-front or roll it into their monthly payments. Under some circumstances, the fee is waived upon request of applicants with documented service-connected disabilities. On condominium loans, charges for surveys must receive prior approval from the VA.
What the Borrower May Not Pay
Restrictions prohibit veterans for paying:
- Attorney's Fees
- Brokerage Frees
- Truth-In-Lending Disclosure Statements
- Document Service
- Pre-payment Penalties
- Notary Fees
- Processing Fees
- Photographs or postage
- Pest/termite Inspection
- Real Estate Commissions
Since lenders can charge an origination fee up to one percent of the total loan, they may be including fees to offset the cost of the restricted charges above – at the buyer's discretion. Costs can also be reduced to the buyer if the seller pays discount closing points up to an allowable 4 percent on the total price of the home. The VA allows negotiations and the use of "reasonable discount points."
VA Loan Entitlements for 2016
The basic entitlement for qualifying veterans/spouses is $36,000. However, the VA backs loans up to four times that amount to eliminate the need for a down payment on a qualified single-family home, a VA-approved condominium, a manufactured home, or refinancing an existing mortgage.
The VA has continued the 2015 loan liability limit of $417,000 based on median home values in most American counties. However, some 235 counties have VA approval on higher limits where veterans could be priced out of the marketplace.
LendingTree's VA Loan Calculator helps home buyers estimate their monthly payments based on price, property zip code, loan amount, credit score, and military experience. Because VA lenders have some flexibility in negotiating closing costs, it makes sense for applicants to round up competitive offers. And, knowing what charges are customary can assist veterans in working out financing up to limits allowed by the VA.