The No Closing Cost VA Loan
You may or may not have heard of the term “No Closing Cost” VA loan. You’re probably aware that VA loans do have reduced closing costs associated with a VA loan but perhaps not zero closing costs. The VA does in fact limit the types of closing costs that veterans are allowed to pay and VA lenders follow these guidelines carefully.
Closing costs that veterans are allowed to pay include origination charges, appraisal fees, credit reports, title insurance and title-related fees, survey charges and discount points. Additional fees, called recurring charges, are things such as homeowners insurance and property taxes are also okay for a veteran to pay. But how can you get a no closing cost VA loan?
The first way is to have someone else pay for your fees on your behalf. Typically, it’s the seller of the property and will be part of the initial offer you make on the home. Your lender can also pay for your closing costs for you but with either method, the closing costs exist. It’s just a matter of who pays for them.
A no closing cost loan eliminates closing costs by adjusting the interest rate on the mortgage. For example, your lender offers you a couple of choice for your 30 year fixed rate, one rate might be 3.75 percent with no points and a lower rate of 3.50 percent by paying one point. On a $200,000 loan, one point is $2,000. You get a lower rate and the lender gets $2,000.
Conversely, your lender can increase your interest rate by one-quarter of one percent and credit you one point, or $2,000 in this example. By increasing your interest rate, the lender can pay the fees for you.
Before you explore a no closing cost VA loan, run the numbers with your loan officer to see if it’s right for you. With a refinance or a purchase, there’s usually a way to eliminate some or all of the closing costs on your loan.