Many people in the military take advantage of VA loans to purchase a home. The VA home loan program provides unique benefits, like no down payment, no private mortgage insurance (PMI), and competitive interest rates. But despite these advantages, one cost that often surprises first-time VA borrowers is closing costs.
Whether you’re preparing to buy your first home or planning to refinance, understanding how VA loan closing costs work can help you budget and avoid surprises at the closing table. In this guide, we’ll break down VA loan closing costs and explain how much you can expect to pay.
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What are VA Loan Closing Costs?
VA closing costs are the fees and expenses you pay when finalizing a VA loan. These costs are typically included with any type of home loan, including conventional, FHA, and USDA loans. But for VA loans, some rules limit what homebuyers can be charged. In certain cases, the seller or lender can cover some or all of the costs.
In general, VA loan closing costs fall into three buckets:
- VA funding fee
- Standard mortgage closing costs
- Prepaid expenses
Let’s break these down.
1. VA Funding Fee
Many military homebuyers using a VA loan will pay a VA funding fee. It’s a one-time charge that helps keep the VA loan program running and allows the VA to continue offering no-money-down financing. Most borrowers choose to roll the fee into the loan amount to avoid paying it up front.
The VA funding fee amount depends on a few factors, including:
- Whether you’re using your VA loan benefit for the first time
- Your down payment amount (if any)
- Whether the loan is a purchase or refinance
- Your service history
Most first-time VA buyers pay 2.15% of the loan amount with no down payment. If you’re using a VA loan for a second (or third) time with no down payment, the fee increases to 3.3%. The higher your down payment is, the lower your VA funding fee is.
In some cases, the VA funding fee can be waived. You won’t pay a VA funding fee if:
- You receive VA disability compensation
- You’re eligible for compensation but receive active duty pay instead
- You’re a surviving spouse of a veteran who died in service or from a service-connected disability
- You’re a Purple Heart recipient on active duty
2. Standard Mortgage Closing Costs
While the VA limits some lender fees, you’ll still have to pay standard closing costs. Typically, mortgage closing costs are between 2% and 5% of the loan amount.
Here’s what standard mortgage closing costs typically include:
- Appraisal fee ($500–$900): The appraisal confirms the home’s value and ensures it meets the VA’s minimum property requirements (MPRs).
- Credit report fee ($20–$50): Many lenders charge a small fee to pull your credit report.
- Origination fee (Up to 1%): The VA allows lenders to charge up to 1% of the loan amount as an origination fee. This may cover underwriting, processing, and administrative work.
- Title fees ($800–$2,000+): These include title search fees, title insurance fees, and escrow fees. Title costs can vary widely by state and company.
- Recording fees ($25–$250): Local governments often charge a fee to record the deed and mortgage.
- Survey fee ($300–$600): A survey fee isn’t always required, but it’s sometimes needed depending on your location or lender’s policy.
- Termite inspection fee ($0–$150): If your home is located in an area with a high likelihood of termite damage, you’ll need to pay for a termite inspection.
3. Prepaid Expenses
The last bucket of VA mortgage closing costs is your prepaid expenses. These aren’t lender fees—they’re future expenses that you’re prepaying upfront. These fees usually include:
- Prepaid property taxes: You might need to pay a portion of your annual property taxes upfront, depending on your closing date.
- Homeowners insurance premium: Most lenders require you to pay for a full year of home insurance at closing.
- Prepaid interest: This covers interest from the day you close until the end of the first month.
- Initial escrow deposit: Your lender may require a few months of taxes and insurance payments paid upfront to fund your escrow account.
How Much Will You Pay in VA Closing Costs?
The amount you’ll pay in VA closing costs can depend on a variety of factors, including your down payment size, location, property characteristics, and lender. While every situation is different, here’s a typical breakdown of VA closing costs:
- VA funding fee: 0% to 3.3% (can be financed into the loan)
- Standard closing costs: 2% to 5% of the loan amount
- Prepaid expenses: 1% to 3% of the loan amount
To give you a better idea of VA closing costs, let’s look at an example using a $400,000 VA purchase loan. Here’s how the numbers may look:
- VA funding fee (2.15% for first-time VA borrower with 0% down): $8,600
- Standard closing costs (approx. 3%): $12,000
- Prepaid expenses (approx. 2%): $8,000
In this example, your total closing costs would be around $28,600. If you rolled the VA funding fee into your mortgage, you would pay less out of pocket for closing costs.
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How to Reduce (or Eliminate) VA Closing Costs
When you use a VA purchase loan to buy a home, you don’t always have to pay all the closing costs yourself. There are a few things you can do to lower or eliminate your upfront expenses:
- Seller concessions: The VA allows sellers to pay up to 4% of the loan amount toward closing costs. This can cover expenses like the VA funding fee, prepaid taxes, and insurance premiums. You’ll need to formally request these concessions.
- Lender credits: Lenders can offer credits in exchange for a slightly higher interest rate. These credits can cover part or all of your closing costs.
- VA funding fee exemption: If you qualify for a VA disability exemption, you automatically save money by not paying the VA funding fee.
- Shop around: Title fees, lender fees, and home insurance premiums can vary significantly. Getting quotes from multiple companies can help lower your costs.
Final Thoughts
VA closing costs are different for every homebuyer. The amount you’ll pay depends on factors like your location, lender, down payment amount, insurance premiums, and property taxes. While some costs are fixed, others can be negotiated or paid for by the seller or lender. If you’re planning to buy or refinance with a VA loan, it’s important to compare lenders, ask questions, and understand every fee on your Loan Estimate to avoid surprises.
Frequently asked questions
How much are VA loan closing costs?
VA loan closing costs typically range from about 2 percent to 5 percent of the loan amount, not including the VA funding fee. The exact amount depends on factors such as the home price, location, lender fees, title costs, and prepaid expenses like taxes and homeowners insurance.
While VA loans eliminate the need for a down payment and private mortgage insurance, borrowers should still plan for closing costs unless they are covered by seller concessions, lender credits, or exemptions.
What fees are included in VA loan closing costs?
VA loan closing costs generally include three main categories of fees: the VA funding fee, standard mortgage closing costs, and prepaid expenses. Standard costs often include the appraisal fee, credit report fee, origination fee, title and escrow fees, recording fees, and inspections when required.
Prepaid expenses usually include homeowners insurance, prepaid interest, property taxes, and initial escrow deposits. The VA limits what lenders can charge and prohibits certain fees altogether.
Does a VA loan cover closing costs?
No, a VA loan does not automatically cover closing costs. However, borrowers have several options to reduce or eliminate out-of-pocket VA costs. In many cases, closing costs can be paid by the seller, covered by lender credits, or offset through negotiation.
The VA funding fee, which is separate from standard closing costs, can usually be rolled into the loan balance rather than paid upfront.
Do disabled veterans pay closing costs on VA loans?
Disabled veterans may still pay standard VA loan closing costs, but many are exempt from paying the VA funding fee. Veterans receiving VA disability compensation, certain active-duty Purple Heart recipients, and qualifying surviving spouses typically do not pay the funding fee.
Even with a funding fee exemption, other closing costs such as appraisal fees, title fees, and prepaid expenses may still apply unless they are covered by the seller or lender.
Can VA loan closing costs be rolled into the loan?
Some VA loan closing costs can be rolled into the loan, but not all. The VA funding fee can almost always be financed into the loan amount, which reduces upfront costs. Other closing costs generally cannot be rolled into the loan unless they are covered by lender credits or seller concessions.
Rolling costs into the loan can increase the total loan balance and interest paid over time, so borrowers should weigh short-term savings against long-term costs.
Can the seller pay VA loan closing costs?
Yes, the seller can pay VA loan closing costs. The VA allows sellers to contribute up to 4 percent of the loan amount toward buyer costs, known as seller concessions. These concessions can cover expenses such as the VA funding fee, prepaid taxes and insurance, and certain closing costs.
Seller-paid costs can significantly reduce the amount of cash a buyer needs at closing, especially in negotiated purchase agreements.
How can I reduce my VA loan closing costs?
VA borrowers can reduce closing costs in several ways. Common strategies include negotiating seller concessions, using lender credits in exchange for a slightly higher interest rate, qualifying for a VA funding fee exemption, and shopping around for lenders and title companies.
Carefully reviewing the Loan Estimate and comparing multiple offers can also help identify unnecessary fees or opportunities for savings.
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