VA Loan Closing Costs, What Veterans Actually Pay

What do VA loan closing costs actually include

Closing costs are the one part of a VA loan that surprises buyers, because $0 down does not mean $0 at the closing table. For almost all VA buyers the costs fall into three buckets, the VA funding fee, the lender and third-party fees like the appraisal and title work, and the prepaids that set up your escrow account for taxes and insurance. As a planning number, somewhere between 3% and 5% of the loan amount is a reasonable place to start, though seller concessions and the funding fee exemption can pull that down dramatically, sometimes all the way to almost nothing out of pocket.

The good news is the VA built this loan to protect you, and it limits what lenders are allowed to charge in ways that no other loan program does. Let us go through each piece so you know exactly what you are looking at before you write an offer.

The VA funding fee is the biggest line item

The funding fee is what keeps the VA loan program running without monthly mortgage insurance, and for most buyers it is the single largest closing cost. On a first-time use with nothing down it runs 2.15% of the loan amount, so on a $300,000 loan that is $6,450. Use the benefit again and it rises to 3.30%, while putting 5% or more down lowers it. On a VA IRRRL refinance it is only 0.5%.

Two things take the sting out of it. First, the funding fee can be rolled into the loan instead of paid in cash, and almost every buyer we work with rolls it. Second, Veterans with a service-connected disability rating of 10% or more pay no funding fee at all, and surviving spouses receiving DIC are exempt as well. Our VA funding fee chart shows the exact percentage for every down payment and usage scenario.

Fees the VA does not let you pay

This is the part most first-time VA buyers have never heard. The VA caps the lender’s flat origination charge at 1% of the loan amount, and a lender who charges that flat fee cannot also stack separate processing, underwriting, and document preparation fees on top of it. You also cannot be charged a prepayment penalty, ever, so paying the loan off early or refinancing later costs you nothing extra.

What many Veterans may not realize is that not every loan officer walks through this list, and the difference shows up in the final numbers. When you compare offers, look at the total lender charges side by side rather than the rate alone, because this may be a surprise but oftentimes, the larger the lender the higher the closing costs are. We work with over 35 wholesale lenders and shop your file, which is exactly how we keep those charges competitive.

Sellers can pay a surprising amount of your costs

VA loans have one of the most generous seller concession rules of any loan program. The seller can pay all of your loan-related closing costs, and on top of that they can contribute up to 4% of the home’s value toward things like your funding fee, your prepaid taxes and insurance, and even paying down debt to help you qualify. In a balanced market a well-written offer can move most of your closing costs to the other side of the table.

Whether that is realistic depends on your local market, and this is where your agent and your loan officer should be working together. When we issue a pre-approval, we talk through how much concession to ask for in your price range so your offer stays competitive while still protecting your cash.

Prepaids and your escrow account

Prepaids are not really fees, they are your own future bills collected upfront. At closing you will typically fund the escrow account with 2 to 6 months of property taxes and homeowners insurance, plus the first year of insurance paid in advance, and a small amount of prepaid interest covering the days between your closing date and the end of that month. Closing later in the month means less prepaid interest, which is a small lever we can use when cash is tight.

None of that money is lost. It sits in your escrow account and pays your tax and insurance bills when they come due, you would have paid them either way. It just has to be funded on day one, which is why it shows up in your cash-to-close number.

Here’s an example on a $300,000 home

Say you are buying a $300,000 home with $0 down on a first-time use. The funding fee is $6,450, and almost every buyer rolls it into the loan, so it does not touch your cash. Lender and third-party costs, the appraisal, title work, and recording, might run a few thousand dollars depending on your state, and prepaids add the escrow setup on top. If your offer includes seller concessions covering even part of those costs, your out-of-pocket number can land well under what most buyers expect, and if you are exempt from the funding fee the picture gets better still. The honest answer is that no two closings match, which is why we walk through a line-by-line estimate with you before you ever sign anything.

Closing cost questions Veterans ask us

If you want to know what your closing costs would actually look like, not a national average but your state, your price range, and your funding fee status, give us a call at 800-697-4371 or fill out our online pre-qualification form. We will lay out the numbers line by line, and we can usually tell you where you stand in about 15 minutes.