Closing costs might be the least understood part of your VA home loan benefit. Veterans often hear conflicting information: VA loans have no closing costs, sellers must pay everything, or closing costs make VA loans expensive. The truth is more nuanced and, fortunately, much better than most Veterans realize.
The VA has built protections into your benefit that limit what you can be charged and who can charge it. These are regulations that protect you from excessive fees.
Your closing costs aren't just numbers on a settlement statement. They represent the final step between you and homeownership. Understanding them means walking into closing confident, prepared, and protected.
Understanding VA Loan Closing Costs
VA loan closing costs typically range from 2% to 5% of your loan amount, but you might not pay any of it out of pocket.
The VA allows sellers to pay all your loan-related closing costs. Additionally, sellers can contribute up to 4% of the purchase price toward other expenses through what's called seller concessions. Combined, these provisions can eliminate your out-of-pocket closing costs entirely.
But even if the seller doesn't contribute, you have options. The VA funding fee, often your largest closing cost, can be rolled into your loan. Lenders can offer credits to cover costs in exchange for a slightly higher rate.
Breaking Down Your Actual Closing Costs
Understanding what you're paying for demystifies the process. Here's what Veterans typically see on their settlement statements:
VA Funding Fee: Your largest closing cost, with rates set by the VA. The fee is based on your service, down payment amount, and whether it is your first time using the benefit. You can view the official VA funding fee tables to see the exact percentage. Veterans receiving VA disability compensation are exempt from this fee.
Loan Origination Fee: The VA caps this at 1% of your loan amount. This covers the lender's work processing, underwriting, and closing your loan.
Appraisal Fee: The VA sets appraisal fees by region. This isn't negotiable—it's set by the VA based on your property location. The appraisal ensures the home meets VA Minimum Property Requirements and establishes fair market value.
Title Insurance and Settlement Fees: Title insurance protects your ownership rights, and settlement fees cover the closing agent's services. These vary significantly by state and settlement company.
Recording Fees: Your local government charges these to record your deed and mortgage. They're non-negotiable but relatively minor.
Credit Report: Lenders must verify your credit, typically costing a nominal fee.
Survey (if required): Not always necessary, but when required, surveys verify property boundaries.
- Inspection Fees: While the VA appraisal covers basic habitability, a thorough home inspection is recommended. In certain states, termite inspections are VA-required.
The VA's Non-Allowable Fees
The VA prohibits lenders from charging Veterans certain fees. These non-allowable fees must be paid by the seller or lender, never by you. This protection alone can save you thousands.
Examples of Fees You Cannot Be Charged for Include:
- Attorney's fees
- Broker fees or commissions
- Closing protection letters
- Courier fees
- HUD/FHA inspection fees for builders
- Postage or delivery charges
- Real estate commissions
- Escrow setup fees (in most cases)
If you see fees that seem unusual, ask your lender to clarify them against the VA's list of non-allowable charges.
Seller Concessions: The 4% Rule Explained
The VA's 4% seller concession rule is widely misunderstood, even by some real estate professionals. Here's what it means:
Sellers can pay unlimited closing costs that are considered "reasonable and customary." Your loan origination, appraisal, and title insurance fees do not count toward the 4% limit.
The 4% limit applies only to concessions, which are things beyond normal closing costs. This includes:
- Prepaying your property taxes and homeowner's insurance
- Paying off your debts to help you qualify
- Covering your VA funding fee
- Buying down your interest rate with discount points
Working with Your Lender on Closing Costs
An experienced VA lender should provide transparency and advocacy when it comes to closing costs. That starts with explaining every fee on the Loan Estimate upfront, so there are no surprises at the closing table.
A good lender will review every settlement statement to ensure compliance with VA regulations. If they spot non-allowable fees or excessive charges, they should work to get them removed. They can also help structure your offer to maximize seller contributions and educate your real estate agent on how to negotiate effectively on your behalf.
Your Closing Cost Action Plan
As you prepare for homeownership, follow this closing cost strategy:
Before Making an Offer:
- Get pre-approved to understand your estimated costs.
- Research seller contribution norms in your market.
- Identify any available assistance programs.
When Making an Offer:
- Request seller-paid closing costs in your initial offer.
- Distinguish between closing costs and concessions in negotiations.
Before Closing:
- Review your Loan Estimate within three days of application.
- Compare your final Closing Disclosure to your Loan Estimate.
- Question any non-allowable fees or unexpected charges.
At Closing:
- Don't sign until every fee is explained and justified.
- Confirm the funding fee is properly calculated or waived.
Making Closing Costs Work for You
Closing costs shouldn't stop you from using your VA benefit. Between seller contributions, lender credits, and strategic planning, most Veterans can minimize or eliminate out-of-pocket expenses at closing.
The key is working with a lender who understands both VA regulations and Veteran needs. An expert can help structure your transaction to minimize your expenses while ensuring a smooth, on-time closing. Ready to get started? Learn more about VA loans.
FAQs About VA Loan Closing Costs
The following are some questions Veterans often ask about closing costs.
Can you avoid closing costs with a VA loan?
Yes. The VA allows sellers to pay all your loan-related closing costs, plus up to 4% of the purchase price in concessions. You can also roll the VA funding fee into your loan and negotiate lender credits to cover additional costs.
What is the VA funding fee?
The VA funding fee ranges from 1.25% to 3.3% of your loan amount based on your service, down payment, and benefit usage. Veterans receiving VA disability compensation are exempt. Non-exempt Veterans can roll the fee into their loan instead of paying upfront.
What fees are not allowed on VA loans?
The VA prohibits lenders from charging Veterans attorney fees, broker commissions, courier fees, postage charges, escrow setup fees, and real estate commissions. These non-allowable fees must be paid by the seller or lender.
What is the 4% rule for VA loans?
The 4% rule applies only to seller concessions beyond standard closing costs, like prepaid taxes, debt payoff, or rate buydowns. Sellers can pay unlimited reasonable and customary closing costs like loan origination, appraisal, and title insurance outside this limit.
When do you pay closing costs on a VA loan?
You pay closing costs at your closing appointment.
