Are There Closing Costs on a VA Loan?

Are There Closing Costs on a VA Loan?

VA loans usually allow borrowers to finance their closing costs into the loan, so there may be no out-of-pocket closing costs at signing. The Department of Veterans Affairs limits certain seller-paid fees, but a VA loan is not automatically free of all settlement charges.

Common VA Loan Closing Costs

Even when a buyer pays nothing at closing, typical settlement costs still exist on paper. These include the VA funding fee, appraisal fee, credit report charge, title search and insurance, recording fees, and prepaid items such as property taxes and homeowners insurance.

VA Funding Fee

The VA funding fee is the main cost unique to VA loans. It varies based on down payment amount, whether it is a first-time or subsequent use, and whether the borrower receives VA disability compensation. In most cases, the funding fee can be rolled into the loan balance.

Seller Contributions

The VA permits sellers to pay a portion of the buyer's closing costs, but the allowable amount depends on the loan type. For VA purchase loans, the seller may contribute up to 4% of the reasonable value or purchase price, whichever is less, toward specific allowable fees.

Costs Typically Not Allowed

Certain seller-paid items are restricted or excluded, such as the VA funding fee itself and discount points. Buyers should also expect to pay for any items not classified as allowable settlement charges, including recording fees and prepaid interest.

Who Pays What

Buyers and sellers negotiate closing costs much like in a conventional transaction. The VA does not require the seller to pay any fees, but sellers often contribute to help the buyer close with little or no cash out of pocket.

Can You Roll Closing Costs Into a VA Loan?

Yes. VA rules permit financing many settlement costs into the loan, increasing the total amount borrowed. This keeps upfront cash requirements low, though it raises the monthly payment and total interest over the life of the loan.

Summary

VA loans provide flexibility for covering closing costs, often allowing zero cash at closing when the seller contributes allowable fees and the funding fee is financed. Buyers should review their Closing Disclosure carefully to understand which costs are financed and which are paid separately.