Tags: VA Loan Closing Costs
VA Loans Closing Costs
The benefits of a VA home loan are many; they’re easier to qualify for when compared to conventional loans, there is no down payment required and the veteran is limited to the types of closing costs that the veteran may pay. Yet sometimes there’s a bit of confusion with regards to these limited closing costs and who can pay them.
First, the funding fee, expressed as a percentage of the loan amount and added to the principal, is a separate fee paid to the Department of Veteran’s Affairs that helps to support the VA home loan program. Additional fees, called “loan closing costs” are still another set of charges.
These closing costs for the veteran are typically defined as “allowable” and “non-allowable” fees. Non-allowable charges are the ones that the veteran is not allowed to pay for. What are those costs? Most of the non-allowable charges stem from the lender’s fees yet there are others that may not be borrower-paid as well.
A simple way to remember which fees a veteran may and may not pay is with the acronym, “ACTORS.” A veteran is allowed to pay for an Appraisal, Credit report, Title insurance and title-related charges, an Origination fee, Recording and Survey fees. These allowed fees are in addition to personal, recurring charges such as property taxes, insurance and interest charges.
For example, a lender has an underwriting fee of $500 and a loan processing fee of $300. While those fees need to be settled at the closing table, the veteran is not allowed to pay for those charges. Or an escrow fee is charged in order to close the loan or a fee for an attorney to review the loan papers is considered non-allowable as well. So who pays for those fees?
The seller may pay them as long as the fees do not exceed four percent of the sales price of the home. The lender can pay those fees on behalf of the borrower as well…but the veteran cannot pay for them…even if the borrower wanted to. But what if there’s an impasse? What if neither the lender nor the seller can or want to pay for those fees? A recent change in VA guidelines allow for the lender to charge a one percent origination fee in lieu of their standard, itemized charges of underwriting, processing and document charges among others.
While the VA Loan Lender will provide the borrower with an estimate of settlement charges when a property is located, care is needed when reviewing which charges the veteran can and cannot pay. By remembering ACTORS, you’re off to a good start.