Written by Isaac F. Davis
The most frequently asked questions about what fees to expect with a VA-backed mortgage loan are answered in this article. When veterans, active duty military personnel, and certain surviving military spouses apply for VA-backed mortgage loans, many wonder how much they will be charged in related fees. Borrowers may also want to know how much cash to bring to the VA loan closing.
Fees that can be expected at a VA loan closing can be broken down by category. First there is the required VA funding fee. Next, there are fees charged by the VA-approved lender. Then, there are VA-approved appraisal and inspection fees. Also, taxes and insurance may be included in the VA home loan. Finally, there may be some fees that the title company itself charges to handle the deed documentation.
First and foremost, almost all VA-eligible borrowers can expect to pay a VA funding fee. Unless the borrower is exempt as determined by the U.S. Department of Veterans Affairs, the VA funding fee is required by law on all VA loans. The VA funding fee was established as a means to offset taxpayer costs for the government-backed home loan benefit available to certain military members. The fee also allows VA-eligible borrowers to help contribute to the federally-backed VA mortgage program.
Depending on the type of military service, and whether the borrower has used the VA-backed mortgage program before, the VA funding fee can vary. The following table helps to explain the various funding fees that may be charged depending on the type of VA home loan and the borrower’s circumstances:
|Type of VA Loan||VA-eligible service||First-time Fee||Subsequent Fee|
|Purchase or Construction||Regular Military||2.15%||3.3%|
|Purchase or Construction||Reserves/National Guard||2.4%||3.3%|
|Cash-out Refinance||Regular Military||2.15%||3.3%|
|Cash-out Refinance||Reserves/National Guard||2.4%||3.3%|
The VA, not the VA-approved lender, is the entity responsible for determining who is exempt from paying the VA funding fee. If the VA-approved lender suspects that a VA-eligible borrower may be exempt from this funding fee, then the borrower will be asked to complete a Verification of VA Benefits Form 26-8937. The form will be process by the VA, and if it is determined that the borrower qualifies for exemption of the VA funding fee, then the lender will be notified and the fee will not be charged. Those who may be exempt from paying the VA funding fee include:
- Spouses widowed by a veteran who died during service or from a service-connected injury
- Certain disabled veterans as determined by the VA
As long as the total amount of the VA mortgage loan does not exceed the county VA loan limit, the VA funding fee can be included in the veteran’s loan with zero money down. It is also possible for the fee to be included in seller-paid closing costs. With a VA home loan, the seller is always permitted to pay VA-borrower closing costs of up to four percent of the total loan amount.
In addition to the VA funding fee, VA-eligible borrowers may be charged certain fees by the VA-approved mortgage lender. These fees can include a credit report fee, a VA loan origination fee and possibly one or two interest rate-reduction points. Since each U.S. state may have a cap on the total amount of fees that a VA-borrower can be charged, VA-approved lender fees are often the first to be reduced or eliminated. Occasionally, when the VA funding fee that is required by law is added to some of the other fees associated with the VA mortgage, the total is close to the state limit. Therefore, there are sometimes instances when no lender fees are charged at all.
With most veterans’ mortgage loans, a VA-approved appraisal and compliance inspection are required in order to confirm the value of the property and to certify that the property being finance with a federally-backed mortgage is safe to occupy. The VA-approved appraisal and compliance inspection fees could possibly cost anywhere from $300 to $500 depending on the competitive local rates for this service.
It is very common with VA mortgages, as well as most other types of mortgage programs, for the borrower to prepay certain taxes and insurances associated with the property being financed. Property taxes are often paid by the servicer of the VA loan out of the monthly mortgage payments made by the borrower. Typically, the VA-eligible borrower will be required at closing time to prepay the taxes assessed on the property for the coming year. Also, very typically included in a VA mortgage loan is a full year’s worth of the borrower’s homeowners insurance premiums. Depending on the circumstances, sometimes hazard insurance, flood zone determination and a property survey will also be required to be prepaid. Any or all of these types of taxes and insurance fees may appear as itemized charges on the VA loan closing documents.
Fees that may be charged by the title company at a VA mortgage closing usually involve title examination and title insurance, a recording fee, and a mailing and/or wire fees. The title company’s role is to certify that the property deed is free of liens. The title company will provide title insurance to protect the borrower in case it is determined after closing that a lien exists on the property. Also, the title company will need to file the new property owner’s name with the county recorder’s office, and a small recording fee may be required. Finally, there are sometimes small fees associated with mailing or wiring the payment to the seller after the VA loan is funded. Like the taxes and insurance fee, all of the title company fees will also appear as itemized charges on the VA mortgage closing documents.
Many of the fees associated with VA-backed mortgages can be included in the loan as long as the total amount doesn’t exceed the county VA loan limit. Again, the seller may pay buyer’s closing costs up to four percent of the purchase price. Therefore, it is very likely that the VA borrower will not need to bring cash to his or her VA loan closing.
For more information about fees associated with VA loans and cash needed for closing contact your VA loan professional.
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