When you close a home sale or refinance mortgage, there are several costs associated with finalizing the loan. If you compare a VA loan to a conventional loan, you’ll see that the VA limits costs imposed on veterans when they obtain a mortgage. This post will define common VA loan costs and will explain who is responsible for paying what fees.
Who Pays for Which Closing Costs With a VA Loan?
First, it should help to break down closing costs into four basic types:
- Costs associated with obtaining a loan:
These include fees for things like a survey, if necessary, title fees, and underwriting costs.
- Prepaid financing costs (PFC):
PFC costs could include homeowners association dues, VA funding fees, and prorated taxes and homeowners insurance costs.
- Paid outside closing POC:
POC costs may include such things as a VA home appraisal, home inspections and the buyer’s credit report fees.
- Non-allowable fees:
The VA helps veterans by forbidding lenders from charging borrowers certain closing costs that other borrowers might have to pay. These fees change depending on whether or not the buyer’s lender is charging the buyer a loan origination fees. Some examples of these forbidden fees include broker, notary and lender document fees.
So, who pays for which costs? According to the VA’s quick guide to obtaining a loan, you can negotiate most costs. In other words, the VA does not have any rules that say the buyer or seller must pay for these costs.
These are the only rules included in this document:
- All closing costs must get paid at closing time.
- The VA funding fee is the only cost that can get rolled into the loan.
How Much Are VA Closing Costs?
It’s just about impossible to estimate the amount of these closing costs for any individual borrower. Why? Because the fees depend on a variety of factors, including the home’s value, service provider fees, local laws and regulations and neighborhood expenses like HOA fees. When a buyer applies for a loan, they get a good faith estimate (GFE from their lender. This customized snapshot of home purchase costs provides a detailed estimate of all costs associated with the loan.
How to Minimize VA Closing Costs
If you’re selling, your best bet is to first make sure you understand what fees you must pay – the ones that are non-negotiable. Once you understand what your obligations are, you can work to negotiate splitting remaining fees with the buyer. Just keep in mind, the state of the market will impact how much they are willing to bend. If you are buying a home, your best bet is to research your lender carefully and to rely on them to guide you through all the costs you’ll be responsible for. If the market is currently favoring buyers – you also have the option to negotiate on any allowable costs associated with your home purchase.
Understanding what various fees are, what you’re paying for and who is responsible for paying what will help you move into your home purchase or sale with confidence!
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