Understanding VA Loan Closing Costs
The veteran can pay a maximum of all reasonable and customary amounts for any and all of the “Itemized Fees and Charges” designated by VA as defined below plus a 1% flat charge by the lender plus reasonable discount points. Some special provisions apply to construction, alteration, improvement and repair loans.
Please note that often time’s veterans believe that closing costs are covered by a VA mortgage. That is not technically true. However, it is possible through careful structuring of your real estate contract and or the loan itself, to purchase a home with little to no out-of pocket expenses for closing costs.
One way is in the form of a credit from the seller at closing, which must be negotiated with the offer to purchase.
Another way is to structure the loan with a slightly higher interest rate that will allow the lender to pay for the buyers closing costs.
There are pros and cons to both approaches, and when you meet with us, we’ll walk you through your options so you can see what is best for your unique circumstances.
ITEMIZED FEES AND CHARGES
The VA defines allowable fees and charges that the veteran borrower can pay or closing costs that may be charged to the borrower. These costs are determined as reasonable and customary by each local VA office. All other costs in the transaction are considered non-allowable and generally paid by the seller when purchasing a new home or by the lender when refinancing your current VA mortgage. Itemized fees and charges are as follows:
APPRAISAL AND COMPLIANCE INSPECTIONS
The veteran can pay the fee of a VA Appraiser and VA compliance inspectors. The veteran can also pay for a second appraisal if they are requesting a reconsideration of value. The veteran cannot pay for a second appraisal if the lender or seller is requesting a reconsideration of value or if parties other than the veteran or lender request the appraisal.
The veteran can pay for recording fees and recording taxes or other charges incident to recordation.
The veteran can pay for the credit report obtained by the lender.
The veteran can pay that portion of taxes, assessments, and similar items for the current year chargeable to the borrower and the initial deposit for the tax and insurance account.
The veteran can pay for the hazard insurance premium. This includes flood insurance, if required.
FLOOD ZONE DETERMINATION
The veteran can pay the actual amount charged for a determination of whether a property is in a special flood hazard area, if made by a third party who guarantees the accuracy of the determination.
The veteran can pay a charge for a survey, if required by the lender.
TITLE EXAMINATION AND TITLE INSURANCE
The veteran may pay a fee for title examination and title insurance, if any. If the lender decides that an environmental protection lien endorsement to a title policy is needed, the cost of the endorsement may be charged to the veteran.
SPECIAL MAILING FEES FOR REFINANCING LOANS
For refinancing loans only, the veteran can pay charges for Express Mail or a similar service when the saved per diem interest cost to the veteran will exceed the cost of the special handling.
VA FUNDING FEE
Unless exempt from the fee (10% minimum disability from the VA), each veteran must pay a funding fee to VA.
OTHER FEES AUTHORIZED BY THE VA
Additional fees attributable to local variances may be charged to the veteran only if specifically authorized by VA. The lender may request VA to approve such a fee if it is, (a) normally paid by the borrower in a particular jurisdiction, and (b)considered reasonable and customary in the jurisdiction n.
The following list provides examples of items that CANNOT be charged to the veteran as “itemized fees and charges.” Instead, the lender must cover any cost of these items out of its flat 1% fee.
Loan closing or settlement fees, document preparation fees, preparing loan papers or conveyance fees, attorneys services other than for title work, photographs, interest rate lock – in fees, postage and other mailing charges, stationery, telephone calls and other overhead, amortization schedules, pass books, and membership or entrance fees, escrow fees or charges, notary fees, preparation and assignment of mortgage to other secondary market purchasers, trustee’s fees or charges, loan application or processing fees, fees for preparation of truth-in-lending disclosure statement, fees charges by loan brokers, finders or other third parties, and tax service fees.
When reviewing allowable borrower fees and charges, many of the items can be paid for by the seller of the home and can be negotiable when presenting an offer on a home to the seller. Please consult with your Real Estate Professional handling the transaction.