You don’t have to have a down payment and your closing costs are limited but there are some things you’ll need to pay for. Beyond allowable one-time closing costs such as origination fees and appraisal charges, you’ll need an insurance policy, funds to set up an escrow/impound account and prepaid interest charges. If you’re buying and financing a $200,000 home, a standard insurance policy might be around $1,000 or so, depending upon the type of coverage required and applicable deductibles. Your VA lender will want to make sure you have enough funds in the bank to cover these fees and will ask for recent bank statements verifying sufficient funds to close. But what if you don’t have enough right now? What if you’re just short of what is needed?
You can ask the lender to provide a credit but this typically means raising your interest rate some. You can ask the seller to pay for your costs but the seller needs to net a certain amount of money from the transaction in order to close on their next home. Let’s look at a scenario. You want to make an offer on a $200,000 home but are $3,000 short to close. What can you do?
Working with your real estate agent, make the offer to read $203,000 instead of $200,000 and have the seller pay your closing cost shortage. Yes, your monthly payments will go up because you’re borrowing more but the additional $3,000 on a 3.50% 30 year note raises your payment by $13.47. The seller still nets the same amount even after contributing $3,000 to your fees.
In such an instance, ask your real estate agent if the property will appraise at the higher amount and it’s not in your best interest to make such an offer after the initial offer has been accepted. This is particularly problematic when an appraisal has already been completed at the lower amount. However, properly executed, it’s a solution for those needing just a little bit more cash to close.