VA home loans available to active military and veterans are possibly the best loan available today because:
The loan is a 30 year fixed interest rate. Interest rates are close to the lowest they have EVER been. VA loans are not credit score driven and have flexible underwriting guidelines to get active military and veterans qualified. VA loans do NOT have monthly mortgage insurance, unlike FHA loans, or conventional loans with less than 20% down.
VA loans are not credit score driven and have flexible underwriting guidelines to get active military and veterans qualified
There are 3 major costs that are “upfront”. They are the earnest money deposit, home inspection fee and appraisal fee. When you make an offer to buy a house, it is customary to leave a deposit called a “earnest money deposit”. This can range from 1-3% of the property purchase price. These deposit funds will be held with an escrow company after your offer is accepted. If you negotiate for the seller to pay all of your closing costs, you will get this money refunded when you close on the house.
Although VA loans offer 100% financing, there are still costs involved with buying a house with a VA loan. These costs outside of the down payment are known as closing costs. Closing costs on a VA loan can range from 2-4% of the purchase price. VA allows the seller to pay up to 4% of the VA buyers closing costs. Therefore it is very smart when you make an offer to buy a property to ask the seller to credit you for at least 3% of your closing costs. This can dramatically reduce the out-of-pocket expenses to the VA home buyer to get into a home.
The buyer will have to pay for a home inspection. Though optional for a VA buyer, it is highly recommended to have a home inspection. As an independent 3rd party the inspector will inspect all aspects of the house such as the structure, electrical, plumbing and more. It is so that you know you are making a sound investment. Home inspections generally run about $300. This has to be paid up front by the buyer.
Though it is optional to get an inspection on the house with a VA loan, it is highly recommended. The cost is on the buyer and usually run about $300 paid upfront. The inspector will check all aspects of the house, the structure, electrical, plumbing and more, so that you know you are making a sound investment.
And lastly, you will have to pay of the VA appraisal. When you purchase a property the lender will require an appraisal on the property, this has to be ordered right away in the purchase of property. A VA appraisal current costs $400. So to recap, in the beginning stages of buying a house, you will have to come up with an earnest money deposit, $300 for a home inspection and $400 for an appraisal.
The rest of the costs are paid when you close on the house. The closing costs can be broken into 4 categories; lender fees, title/escrow fees, reserves and pre-paids taken by the lender. There are certain fees that the VA borrower is NOT allowed to pay. These will have to be paid by the seller. The major fees the VA borrower is NOT allowed to pay for are:
When you buy a house, the closing is handled by an escrow company. There fees are an escrow fee, notary public fee, and a few other fees for handling the closing. These fees will not have to be paid by the VA borrower, but they will have to be included in the credit that you ask for from the seller. These fees can amount to on average over $1,000. Additionally when you buy a house you will be required to obtain 2 title insurance policies, owners and lenders. The seller will typically pay for the owners policy and the buyer will pay for the lenders policy. The cost of title insurance depends on cost of the property. It will be around $400 for a $300,000 house.
There are costs related to the lender fees. There is generally an underwriting fee, processing fee, credit check fee and possibly an origination fee. The seller has to pay the underwriting and processing fee. The origination fee can vary depending on your interest rate. If you want to lock in the lowest interest rate, a lender can charge up to 1% of the loan amount as an origination fee. Additionally, if you want to buy down the interest rate below market, you can pay discount points to get an even lower than market rate.
When you obtain a VA home loan, you will have to pay the interest on the loan from the day you close until the end of the month. So for example if you closed on your new home January 10th, you would owe interest on the loan from January 10th to January 31st. This is called pre-paid interest and is part of your closing costs. But then your first payment would not be until March 1st. So you essentially get to skip the February payment even though you move in the house January 10th. The reason for this is because mortgage payments are made in arrears. You made your January payment as part of your closing costs, and you wont make your February payment until March 1st. It is a smart idea to time your closing at the end of the month, so you limit the pre-paid interest and reduce your overall closing cost
The VA lender will require you to pay an entire 12 month homeowners insurance policy in advance. To insure against fire and other disasters, all lenders require that you keep a homeowners policy on a property. Paying 12 months in homeowners insurance up front can total between $400 to $1,000 or more. Please call your insurance agent for a quote. The cost will depend on where your property is located and the purchase price
The VA charges a 2.15% funding fee for VA borrowers using their VA eligibility for the 1st time and 3.3% for those using it for the 2nd time or subsequent times. If you have 5% or more down payment, this funding fee is less than the above stated percentages. Also, if you have a 50% or greater VA disability rating the funding fee is completely waived. VA allows this fee to be rolled into your loan. You do NOT have to come out of pocket for this fee.
VA Funding Fee The VA charges a 2.15% funding fee for VA borrowers using their VA eligibility for the 1st time and 3.3% for those using it for the 2nd time or subsequent times. If you have 5% or more down payment, this funding fee is less than the above stated percentages. Also, if you have a 50% or greater VA disability rating the funding fee is completely waived. VA allows this fee to be rolled into your loan. You do NOT have to come out of pocket for this fee.
In summary, these are the major closing costs associated with buying a home with a VA loan. As mentioned, total closing costs can range from 2-4% of the property purchase price. That can be a fairly large number. So it is very important to either plan to have money set aside for these costs or work with the real estate agent representing you to negotiate with the seller to pay for your closing costs.
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