As a veteran or service member who’s ready to embark on your home ownership journey, the first step is to consider your financing options. The Department of Veterans Affairs (VA) guarantees home loans for veterans and service members to help achieve home ownership goals. While VA loans are similar to conventional mortgage loans, there are some notable differences.
Some of these differences are the closing costs associated with VA loans.
What is a VA Loan?
The VA helps veterans, service members, and eligible family members become homeowners. The VA provides a home loan guarantee to help qualified individuals buy, build, or repair homes. Banks and mortgage companies offer the VA home loan, but the VA guarantees part of the loan. This guarantee allows the lender to provide the borrower with more ideal terms. However, it is important to note that not all lenders participate in the VA loan program.
The VA determines who qualifies for the loan and sets the mortgage terms. VA loans are known for having low interest rates, reduced closing costs, and no private mortgage insurance (PMI). Some VA loans don’t require a down payment. While the lender may require a down payment for those who use a VA loan, the VA does not. VA loans can be used more than once. Veterans and service members can use a VA loan multiple times, which helps keep home ownership goals in reach.
Closing Costs Associated with a VA Loan
A VA loan benefits active military members and veterans, as well as their families. While VA loans don’t typically require a down payment, closing costs are still part of the home-buying process. Closing costs for a VA mortgage are similar to non-VA mortgages. However, the closing costs are limited and there are some notable differences between the two mortgages.
Here are some of the most common VA loan closing costs and how they compare to conventional mortgage loans.
Appraisal fee
An appraisal is a required step in any mortgage-funded home purchase. The mortgage lender orders the appraisal, and an appraiser assesses the home to verify that the property is priced correctly. However, VA loans have specialized appraisal fees. The VA appraisal fee is set by region so the price will vary by state. The VA can also limit how much the appraiser can charge to complete the appraisal.
Taxes
Taxes are a closing cost for all home purchases. These include local and state taxes, home insurance, and property tax. These fees can be negotiated as a seller concession, which means the seller would be responsible for all or some of these fees.
VA funding fee
VA loans include a charge called the VA funding fee. This fee helps to pay the VA for guaranteeing the loan. A funding fee is similar to mortgage insurance, which is included in a conventional loan. If the homebuyer defaults on the loan, the VA pays back the lender part of the balance. This allows the VA to guarantee loans without requiring a down payment from the borrower.
The funding fee is a percentage of the loan amount, so it is based on whether or not the buyer makes a down payment and the amount. The funding fee is also based on if it is the borrower’s first VA loan or if the buyer has taken out previous VA loans.
Underwriting and loan processing fees
There is a limit on the amount lenders can charge VA loan borrowers. This means that there may be some closing costs that the borrower doesn’t have to pay for, which includes underwriting and loan processing fees.
Title fees
Title fees, such as the title search and title insurance, are the buyer’s responsibility. However, title fees are another point of negotiation that the buyer can negotiate with the seller.
Preparing to Close a VA Loan
The closing process for buying a home with a VA loan is similar to purchasing a house with a conventional mortgage. Here is what you can expect as you prepare to close on a house using a VA loan.
Pre-Home Buying: Before closing on a home, there are several essential steps to consider before you begin your home search to make the process as seamless as possible.
Pre-Closing: The closing process begins once you make an offer on a home.
How Keller Home Loans Can Help
At Keller Home Loans we care deeply about your home ownership goals and are committed to helping you achieve your home ownership dreams. We know your unique homebuying needs are unique in today’s ever-changing real estate market. As a full-service mortgage lender, we have the solution for nearly every mortgage need. From renovation loans to financing for manufactured housing and everything in between, our goal is to make homeownership more accessible. Let’s work together to find the right mortgage product for your next home buying experience.
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Begin your home search by getting pre-approved for a home loan. Applying now will help start your homeownership journey. Contact us today to learn more.
