VA Loan Closing Costs in Colorado

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All mortgage loans have closing costs; it’s a part of doing business with a lender. VA loans have limits regarding what buyers pay, though. The VA protects buyers and I also ensure my clients pay the lowest closing fees possible to make the most of your VA home buying experience.

Can Sellers Pay your VA Loan Closing Costs?

The VA allows sellers to cover all the buyer’s closing costs related to the loan. This includes all allowable and not-allowed closing costs for the loan.

Sellers may also pay up to 4 percent in ‘other fees’, known as seller concessions. This covers expenses, such as prepaid interest, property taxes, and homeowner’s insurance that you would otherwise owe at the closing.

If you don’t have the cash for closing costs or if you wish to have the seller cover your closing costs, negotiate it with the seller before executing the contract as it will affect the home’s total sales price and your bottom line.

Here’s a closer look at the VA closing costs.

VA Loan Closing Costs

Veterans, sellers, or a combination of the two may pay the following VA loan closing costs. Veterans cannot include these costs in the loan amount, though; you must pay them at the closing:

• Credit report fees
• Title fees including the title search and insurance
• Recording fees
• Transfer taxes
• Survey fees

The VA allows veterans to pay reasonable and customary fees for the above costs, plus a 1 percent lender origination fee. Lenders must use 1 percent fee to lump any non-allowed closing costs into it rather than charging them to the borrower as itemized costs.

Veterans may also pay reasonable discount points for the market at the time of purchase to lower the interest rate. For example, you may pay 1 point to lower your interest rate by 0.25 percent.

Other VA Loan Closing Costs

Besides the itemized costs above, the VA allows the following closing costs:

• Appraisal fee – Veterans may pay a reasonable and customary appraisal fee. Lenders require an appraisal to determine the home’s value and the maximum loan amount.
• Second appraisal fee – Veterans may only pay for a second appraisal if they (the buyer) ask for a reconsideration of value (not if the seller or lender requests it). Veterans may ask for reconsideration if they feel the appraiser made a mistake or missed a viable comparable property.
• VA compliance inspector’s fee – Veterans may pay for the compliance inspection to ensure the home meets the VA’s Minimum Property Requirements. All properties must pass the VA MPRs in order to use VA financing.
• Title fees – Veterans may pay all title examination fees, title insurance, and environmental protection lien endorsements (if applicable). A title search and lender’s title insurance is required for every loan. You may also choose an owner’s title policy, which you may include.
• Recording fees – Veterans may pay the county recording fees and taxes to record the mortgage, which is required by law.
• Flood zone determination – Veterans may pay a third party for a flood zone certification service which determines if the property requires flood insurance.
• Survey – If the lender requires a survey, veterans may pay the cost.

Prepaid Items

Veterans may pay all prepaid items which include:

• Real estate taxes due at the closing
• Homeowner’s insurance due at the closing
• Flood insurance premiums, if required
• Prepaid interest for the rest of the month

VA Funding Fee

All VA loans include a funding fee, except in certain situations. The amount paid depends on your down payment. First-time homebuyers with no down payment pay 2.3 percent of the loan amount. Veterans borrowing for the second time pay a 3.6 percent fee.

Veterans that put down 5 percent to 9.99 percent of the purchase price pay 1.65 percent of the loan amount fee and veterans putting down 10 percent or more pay 1.4 percent of the loan amount.

Veterans may include the funding fee in the loan amount or pay it at the closing.

Certain veterans are exempt from the fee, including:

• Veterans receiving disability pay from the VA
• Veterans eligible for VA disability pay but who are collecting retirement pay
• A surviving spouse of a veteran who died during duty or from injuries/illness relating to his/her service
• Veterans who received the Purple Heart

The Non-Allowed Fees

The VA protects veterans by not allowing certain fees. For example, veterans can’t pay fees to close the loan, prepare documents, rate lock fees, postage fees, escrow fees, notary fees, trustee fees, tax service fees, or attorney fees for title preparation.

Lenders must include these fees (if applicable) in the 1 percent of the loan amount charge.

Paying Closing Costs

Veterans have two options to pay the closing costs – pay them out of pocket or ask the seller to cover them. It’s important to discuss your options with your seller if you want help with the closing costs. Willing sellers provide a credit at the closing. In reality, they help you increase your loan amount. Your loan amount will be the lesser of the purchase price or appraised value. Your purchase price should include the cost of the closing costs or the amount the seller’s willing to contribute. This ensures your loan amount will be enough to cover the closing costs too (as long as the home is worth at least the same amount).

I have extensive experience helping veterans determine the right option that suits their pocketbook now while ensuring they make a sound financial decision for the future.

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