Owning a home is everyone’s dream. Financial constraints may hinder you from purchasing your dream house. Therefore, most people opt for loans to help them buy their dream house. However, financial institutions come with several restrictions when applying for a loan. High-interest rates and short repayment periods discourage people from applying for mortgage loans. Studies show that mortgage demand dropped by 23% over the last one year.
Therefore, some top banks offer mortgage loans with small interest rates to help you purchase your dream house. Mortgage loan applicants require paying a certain percentage of the purchase price as a down payment. It also comes with several fees applicants must incur before applying for the loan.
However, people serving in the military can now take advantage of the VA mortgage loans offered at District Lending. This loan helps military personnel acquire new homes without needing a down payment. It only requires upfront charges that can be added to the mortgage loan.
What is a VA Loan?
The VA loan is a mortgage loan established by the Department of Veteran Affairs. This loan type helps service members and their spouses acquire a new home with little or no down payment. It also does not require one to pay private mortgage insurance and comes at a favorable interest rate.
During application, applicants must provide a certificate showing eligibility for a VA loan. Applicants must provide the right documentation indicating whether they are in service or veterans. Some lenders may require other documentation before offering you the loan. Despite the requirements, VA loans are easier to qualify for than conventional loans.
What are the Terms of a VA Loan?
- Applicants do not pay a down payment unless the home price exceeds the highest loan limit.
- It does not require private mortgage insurance.
- It has fewer closing costs, and most are limited to the seller
- No prepayment penalty if the borrower makes an early payment
What are VA Closing Costs?
Covering Closing costs is the main challenge for most borrowers. Some of these closing costs include:
- Lenders fee
Loan applicants must pay all closing costs before finalizing the loan application process.
However, VA loans closing costs are different from other types of conventional loans. Therefore, service members and veterans may be exempted from certain fees. Some top lenders, such as District Lending, also provide other options to fund the closing costs for VA loans.
For most conventional mortgage loans, applicants will pay between 2%-6% of the loan towards closing costs. However, with VA loans, eligible personnel cannot pay closing costs that exceed 1% of the loan amount.
VA Funding Fee
The VA funding fee is a special cost with the VA loan. It is a one-time payment fee paid to the Department of Veterans Affairs. The funding fee’s main goal is to support the continuation of the VA loan program.
The total amount of the VA funding fee depends on the amount you pay as a down payment. The larger the down payment, the smaller the percentage assigned to the funding fee. It ranges from 1.4% to 3.6%. However, members who meet certain requirements do not pay the VA funding fees. The requirements include the following:
- If you are receiving VA compensation due to a disability acquired when serving
- If you are eligible to obtain payment for any service-connected disability
- If you are a surviving spouse of a veteran who passed on while in service and you are receiving a Dependency and Indemnity Compensation
- If you are a service member with a memorandum rating before the loan closing date
- If you are a service member with a Purple Heart
VA Appraisal Fee
The appraisal fee is a standard cost paid for most conventional loans. However, the VA loan comes with a specialized VA appraisal fee. The appraisal fee varies depending on the location of the purchase. The VA sets the appraisal fee and not the lender. Therefore, applicants will need to pay the loan upfront. Each state comes with different appraisal fee charges.
Title charges or insurance protect homebuyers and lenders against defects or other title-related issues arising after closing. Applicants must purchase the lender’s title insurance that protects their interest in the property. It is best to pay this one-time fee to ensure you are covered.
Several mortgage loans come with discount points, including VA loans. Discount points help to lower the interest rate. In most cases, one point is equal to one percent of the total loan amount. Therefore, the lender will ask you to pay at the closing time when you purchase the discount points.
Most lenders ask loan applicants to pay a fee to access credit information. However, some offer this service for free. For those who charge, the cost should not exceed $50.
Real Estate Taxes
The buyer and listing agent often split a commission representing a certain percentage of the home’s sale price. This fee is included in the seller’s sale proceeds.
Local authorities charge a certain fee on the deed and mortgage-related documents. All the real estate transactions become public records accessible to everyone in the community.
Which Closing Costs do VA loan Applicants not pay
The VA prohibits loan borrowers from certain types of closing costs and fees, such as:
- Application fees
- Attorney fees
- Mortgage rate lock fee
- Postage fee
- Escrow fee
- Document preparation fee
- Home inspection fee
- Appraisal fee ordered by the lender
Who Pays the VA Loan Closing Costs?
The buyer, seller, and lender have the mandate to pay a certain amount of the closing costs of a VA loan. Regulations prohibit the seller from paying more than 4% of the closing costs. The common fees paid by the seller include the following:
- Commission to the seller and buyer agents
- Commission for real estate professionals
- Termite report
The buyer should pay the VA funding fee, loan origination fee, discount points, title insurance, and VA appraisal fee. The lender will pay certain expenses, such as the attorney fee. However, the VA regulations limit the costs paid by the buyer.
How to Limit Out-of-Pocket Costs
Roll the Funding Fee into the Loan
Most borrowers incur a fee of between 1.4% and 3.6% of the total loan amount. However, the limit will depend on the down payment and other factors, such as whether you are a beneficiary of a VA loan. You can choose to pay the funding fee at closing time. However, most lenders allow you to roll it into your loan. Therefore, adding it to your total loan amount increases interest and loan amount.
Negotiate with the Seller
VA requires sellers to cover some costs to help reduce borrowers’ out-of-pocket costs. Therefore, you can ask the seller to cover some costs. Sellers can choose to share some of the closing costs, such as discount points and VA appraisals. Some sellers may agree to pay up to 4% of the loan amount.
Apply to Eliminate Some Closing Costs
Some special circumstances may exempt you from paying loan fees, thus reducing the overall closing costs. These circumstances include:
- Veterans living with disability due to injuries obtained when serving
- Veterans receiving compensation due to disabilities connected to their service
- Veterans receiving retirement payments but living with disability
- An active service member with Purple Heart
- A surviving spouse of a partner who died during service
You can also ask for discounts from lenders. Some lenders, such as District Lending, can agree to waive certain costs. Some states also allow veterans to apply for payment assistance programs to reduce closing costs.
How do VA Loans Closing Costs Differ from Conventional Mortgage Loans?
VA loans provide affordable home financing to military personnel. The VA closing costs come with several differences compared to conventional mortgages. Some of these differences include the following:
No Private Mortgage Insurance Payment
All conventional mortgage loans require lenders to pay private mortgage insurance, especially when you make less than a 20% down payment. VA loan beneficiaries are exempted from paying private mortgage insurance.
Borrowers Do Not Pay Certain Costs.
VA sets rules that prohibit lenders from charging certain fees to borrowers. Some of the restricted costs include:
- Attorney fees
- Prepayment penalties
- Appraisal fees
- Inspection fees
- Appraisal fees from lenders
Lenders are to Pay 1% of the Loan Amount
VA loan regulations protect lenders from being overcharged by lenders. Therefore, lenders have an obligation to pay an origination fee equal to or more than 1% of the total loan amount.
The VA Appraisals are Expensive
VA-approved appraisers ensure that the home purchased is safe and meets the standard set by the VA. Therefore, the inspection is more detailed and does not only target the home value. It also covers the condition of all home components, from the foundation to the roof. Therefore, the fee will range from $500 to $1200, which is higher than the conventional loan appraisal fee.
How Much are VA Closing Costs
The VA loans closing costs range from 3% to 5% of the total loan. However, the final tally depends on the lender you choose. However, the law requires the lender to provide you with an estimate of all closing costs within three days of applying and a finalized list three days before the closing date.
Consider District Lending for Your VA Loan Application
Are you serving in the military or retired? The District Lending is the best option to obtain your dream home. It is the best lending company that offers affordable VA loans to veterans. The loans have low down payment requirements and flexible approval guidelines.
The company allows borrowers to create a flexible payment plan that meets their demands. Take advantage of this loan option to help you get your dream home.
Frequently Asked Questions
What is a VA Loan?
A VA loan is a loan type designed specifically for veterans and people serving in the military. Spouses to members who died when serving or acquired a military-related injury can also benefit from a VA loan. The loan comes with several benefits, such as flexible payment plans and low down payment options.
What Closing Costs Associated with VA Loans?
VA loans differ from conventional mortgage loans due to the reduced closing costs. VA loans come with few closing costs that include:
- VA funding fees
- VA appraisal fees
- Title charges
- Recording fees
- Discount points
- Real estate taxes
How Can VA Loan Applicants Reduce Out-of-Pocket Costs
Loan applicants can reduce out-of-pocket charges incurred on VA loans by:
- Rolling the closing costs into the existing loan
- Negotiating with the seller to cover some closing costs
- Apply for payment assistance programs
- Pay a larger down payment