Who pays closing costs on a VA loan?
While the homebuyer is primarily responsible for VA loan closing costs, it's possible to negotiate with sellers to cover a portion of these expenses, and the Department of Veterans Affairs (VA) sets specific limits on what borrowers can pay, even prohibiting Veterans from paying certain fees.
Primary Responsibility: The Homebuyer
For the most part, the Veteran homebuyer is responsible for paying their own closing costs when securing a VA loan. These costs cover various services and fees associated with processing the loan and transferring property ownership, such as appraisal fees, title insurance, and recording fees.
Leveraging Seller Contributions
A significant advantage for VA loan borrowers is the ability to negotiate with the seller to contribute towards closing costs. Sellers can cover a portion of these expenses, which can significantly reduce the Veteran's out-of-pocket costs at closing. This negotiation is a common strategy to make homeownership more accessible for service members and Veterans.
VA-Specific Restrictions on Closing Costs
The VA plays a crucial role in protecting Veterans by placing strict limits on the types and amounts of closing costs that borrowers can be charged. This means not all fees typically associated with a home purchase are allowable for the Veteran to pay.
- Costs Veterans Are Prohibited from Paying: The VA has specific regulations detailing certain fees that Veterans are not allowed to pay. These usually include commissions or broker fees, attorney fees for the lender, and certain tax service fees. These restrictions are in place to prevent Veterans from incurring excessive or unnecessary costs.
- Allowable Closing Costs for Veterans: Generally, Veterans are allowed to pay for reasonable and customary charges, such as the VA funding fee (unless exempt), appraisal fees, credit report fees, survey fees, title insurance, and recording fees.
For more information on VA loan benefits and requirements, visit the official Department of Veterans Affairs website.
Strategies to Reduce Out-of-Pocket Expenses
Veterans have several avenues to minimize their closing cost burden:
- Seller Concessions: Actively negotiate with the seller during the purchase agreement phase to have them cover a percentage of closing costs.
- Lender Credits: Some lenders may offer credits that offset closing costs in exchange for a slightly higher interest rate.
- VA Funding Fee: While often rolled into the loan amount, understanding the VA funding fee and potential exemptions (e.g., for Veterans receiving VA disability compensation) can also reduce upfront costs.
By understanding who is responsible for which costs and utilizing available flexibilities like seller contributions, Veterans can navigate the closing process more effectively and achieve their homeownership goals.
