If you’ve VA home loan eligible, you’re a lucky person. First, you earned it through your dedicated service to our country and it’s one heck of a mortgage program. Since 1944, the VA home loan benefit has been one of the most popular entitlements for those who qualify. The mortgage requires zero money down from the borrower, relaxed credit guidelines and no monthly mortgage insurance.
The VA also restricts certain closing costs that the veteran may pay. No money down, easier qualifying, no monthly mortgage insurance and restricted closing costs. However, the no-closing cost option can sometimes be a slight roadblock. How so?
Certain fees can’t be charged to the veteran, such as processing, underwriting and escrow charges among others. However, these fees still must be paid somehow and it’s usually the lender or the seller of the property.
When placing an offer on a home and financing the purchase with a VA loan, it’s common for the buyer to request that the seller pay for the buyer’s restricted closing costs. But the seller isn’t obligated to do so and can in fact accept another offer that doesn’t require them to pay someone else’s fees.
The lender may also issue a lender credit to the borrower by adjusting the interest rate slightly upward. A common example might be a 30 year fixed rate increase by one-quarter of one percent. In exchange for a higher rate, the lender can issue a credit of approximately one percent of the loan amount. But that means increasing your rate and even though it’s one-quarter of one percent, over the long haul that can add up.
The VA made a recent change that allows the lender to charge a flat one percent origination fee to the borrower in lieu of the restricted closing costs. For example, if the loan amount is $300,000, the one percent origination fee is $3,000, used to credit the restricted fees.
When you apply for your VA loan, make sure you clearly understand your options. There are restricted fees and they must be paid, but there are ways around it.