It really doesn’t take very much cash to close on a VA loan. Of course, the most obvious savings is the lack of a down payment needed. In addition, there are certain closing costs the veteran simply isn’t allowed to pay. Even the closing costs a veteran is allowed to pay can be paid for with a seller contribution or a lender credit. On the seller’s side, there are also closing costs. And at some point, the veteran who buys a home will be on the other side, where there are no limits to closing costs the veteran pays. That said, if you’re financing a property and it’s possible you’ll be selling that property sooner rather than later, you may want to rethink your purchase.
Say you buy a home for $200,000 and finance it with a VA loan. This is your first time so your funding fee will be $4,300 for a final loan amount of $204,300. There was no money down and the seller took care of all your closing costs except your insurance premium. Now, consider you need to move two years from now. In order to qualify for a new loan, you’ll have to sell the existing property retiring the existing VA loan. If you originally took a 30 year VA rate of 4.25%, after two years, your loan balance is $193,513.
Your home has appreciated since the original purchase by 5.00% so you list your home for $210,000. Your real estate agent provides you with a “net sheet” which shows how much money you will receive once you sell. The net sheet is the sales price less closing costs less outstanding mortgage.
If you subtract your payoff of around $195,000 from $210,000 the answer is $15,000. Now say you have $5,000 in closing costs, that leaves $10,000 but you haven’t paid the real estate commission. If you negotiate a 5.00% commission, that’s $10,500. After the dust settles, you’re short to close by $500. If you sell in one year, you’ll have to come to the closing table with around $5,000. When you buy a home and finance it with a VA mortgage, understand what can happen if you have to sell sooner than you originally planned. You might have to come to the closing table with cash upon selling.