Besides zero down payment, VA loans offer another distinct advantage to military veterans - obtaining loans without paying closing costs. Usually, closing costs range somewhere between two and five percent of the loan amount. This means that for a home worth $100,000, the closing cost will be between $2,000 to $5,000. So, if not the borrower, who bears this cost? To answer this, let’s start with the fees that constitute the total closing cost. The fees can be broadly classified into two categories: non-allowable and allowable.

Non-Allowable Closing Costs

The non-allowable closing costs on a VA purchase include but are not limited to:

• Notary Fees

• Escrow

• Underwriting

• Processing

• Tax Service

• Broker Fees

• Lender document fees

• Transaction Coordinator Fees

• Termite inspection fees in all but nine states

• Transaction Coordinator Fees

Allowable Closing Costs

Apart from non-allowable costs, there are also allowable costs that veterans usually pay to obtain their VA mortgage loan. This includes loan origination fee, credit report fee, appraisal fee, and VA Funding fee, among others.

So Who Pays Closing Costs?

The Seller

Sellers can pay a part of the closing costs as a “seller’s concession,” however, it should not exceed 4 percent of the selling price on a VA loan.  If a property’s purchase price, for example, is $100,000, then sellers can pay as a selling concession up to $4,000.   In a “Seller’s Market”, where demand for homes is high and supply of homes is low, it is not common for sellers to give concessions as they are likely receiving multiple offers above listing price, and without concessions.  In a “Buyer’s Market”, the opposite is true and sellers are more willing to help the borrower to entice them to purchase their home.

The Agent

Usually, there are two agents involved in a home sale process - a selling agent, and a listing agent.  The agents typically receive their commission from sellers of the home. From this commission, agents may also contribute towards paying the closing costs, though it is not a mandate. The agent(s) will typically only do this when a buyer needs help with closing costs to help make sure the transaction goes through, instead of starting all over.  It is worth mentioning here that some states don’t allow this practice. Therefore, check with a local, licensed real estate professional before exploring this option.  Texas is one of the states that does allow this practice.

The Lender

Lenders can offset a part of or all closing costs with a lender credit. Usually, however, this comes at the trade off of a slightly higher interest rate. Let’s look at an example - a VA loan borrower applies for a 30-year VA mortgage, the lender may initially offer a loan at 3.75 interest rate if it is reasonably believed that the seller and/or agent(s) will be covering the non-allowable costs.  If it is determined that they are not, then the lender can offer a higher rate - say 4.00 % - 4.125% - and provide a credit toward the borrower that will cover the non-allowable costs for the borrower.

As you can see, understanding and maneuvering around the types of closing costs associated with a VA mortgage loan can be quite confusing. This is why it is so important to speak with a true mortgage expert, like the ones at Service First Mortgage - The Davidson Group, who know this special program inside and out.  Simply contact us today with your questions, or to get started on your VA mortgage loan application.