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VA loan closing costs

The VA funding fee is one closing charge. VA also limits which other charges a veteran can be asked to pay.

By Crunch My Mortgage Editorial Team Sources How we test

A VA-guaranteed home loan can be closed with little or no down payment. That does not mean the borrower brings nothing to the table. Closing costs are the charges to make the loan and transfer the house, and they are easy to mix up with the funding fee. They are different lines. The funding fee is set by statute and published by the Department of Veterans Affairs. The other charges are the ordinary costs of a purchase, and VA decides which of them may be charged to the veteran.

The funding fee is not the whole bill

The funding fee is a percentage of the loan amount. On a purchase it depends on the down payment and on whether the borrower has used the VA home loan benefit before. It can be paid in cash at closing or added to the loan. Adding it to the loan means it is not due as cash that day, and it becomes part of the balance. Some borrowers pay no funding fee at all. The exemptions are listed on who is exempt from the VA funding fee.

The fee is not mortgage insurance billed every month. A VA loan does not use the private mortgage insurance or the FHA annual premium that other loans charge. Paying the funding fee, or being exempt from it, is the VA version of that cost, paid once.

What else is due at closing

Beside the funding fee, a purchase typically includes:

  • Lender charges for making the loan, such as an origination charge.
  • Third-party charges: appraisal, credit report, title search, title insurance, and the settlement fee.
  • Government recording charges and transfer taxes, where the state charges them.
  • Prepaids: the first year’s homeowners insurance, and per-diem interest from the closing date to the end of the month.
  • An escrow deposit so the servicer can pay later tax and insurance bills.

VA does not let the lender charge the veteran every fee a conventional loan might include. VA publishes the charges a veteran may pay and treats other charges as the lender’s or the seller’s to cover. The list is on VA’s funding-fee and closing-costs page, linked below. This article does not restate that list as a private fee schedule, because a charge that is missing from VA’s list is not made allowable by appearing on a website. The Loan Estimate is where a specific file shows which charges are in the veteran’s column.

Seller concessions can pay costs VA allows a seller to pay. They are not the same thing as the veteran paying the charge. A concession has program limits. Those limits are in VA’s rules for the loan type, not in a calculator that adds up dollars.

Worked example

A first-use purchase of a $360,000 home with no down payment. The funding fee comes from the VA funding fee calculator. The other figures are made-up inputs to the cash to close calculator, so the arithmetic is visible. They are not a quote of typical VA fees, and the cash-to-close calculator does not know which of those fees VA allows the veteran to pay.

  1. Loan amount before the fee: $360,000. First use, no down payment: the funding fee rate is 2.15%.
  2. Paid in cash, the fee is $7,740.00, due at closing, and the loan stays $360,000.
  3. Financed instead, the cash due for the fee drops to $0.00 and the loan becomes $367,740.00.
  4. Separate from the fee, the made-up closing costs, prepaids, and escrow in the cash-to-close example total $7,221.00. With no down payment, no seller credit, and no earnest money, cash to close for those items is $7,221.00, before the funding fee.
  5. Paying the fee in cash adds $7,740.00 to that sum. Financing the fee leaves the cash-to-close line for the fee at zero and raises the loan instead.

A real Loan Estimate replaces the made-up fees with the lender’s figures and shows whether each charge is paid by the borrower, the seller, or the lender. The estimate is the document to read. The calculators show the arithmetic once those figures are known.

Down payment and closing costs are different piles of money

VA purchase loans can be made with no down payment, subject to entitlement and the lender’s approval. Closing costs are still due unless someone else pays them. A gift, a seller concession, or a lender credit can cover allowed costs. None of those is the funding fee unless the parties apply them that way, and a financed funding fee is not a lender credit. It is borrowed money.

The mortgage payment calculator turns the loan amount into a monthly payment after you add tax and insurance. Use the financed total, $367,740.00 in the example, if the fee was added to the loan. Use $360,000 if the fee was paid in cash. The monthly payment does not include the one-time fee a second time.

Limits of this explanation

This page does not say whether a particular veteran qualifies, which use of the benefit applies, or whether an exemption applies. It does not list a state’s transfer tax. It does not set an origination charge. VA’s page and the Loan Estimate do that work for a real loan. If this page and VA’s page disagree, VA’s page governs.

Sources