Can I Roll Closing Costs Into My Va Mortgage

How Military Buyers Can Include VA Closing Costs in Their Purchase

The two most popular questions on a VA loan are:"How much is my monthly payment?" and "How much do I need to bring to closing?" VA home loans are 100% financed (provided you've taken into account VA closing costs). In this article, we explain closing costs and buyer strategies and solutions allowed by the Veterans Administration. These solutions may be huge for Veterans, service members, and surviving spouses looking to purchase a home.

Common Misconception – There Are No VA Closing Costs

Let's get the facts straight on VA closing costs. There are always closing costs associated with VA loans. Many Veterans (and even some real estate agents) will state, "But, VA has no closing costs!" That is assumed because it is common that another party covers the Veteran's costs.

This misconception could cause issues later in the process. For instance, a purchase contract or lender not accounting for the closing costs would mean the buyer would pay the fees at closing. Not that there is anything wrong with the buyer paying closing costs, but many buyers choose not to bring or don't have those funds for the closing costs.

What are the VA Loan Closing Costs?

Closing costs on VA loans are practically the same as other mortgage loans with a few exceptions. Similar costs on a purchase include appraisal, title search, title insurance, closing attorney, recording fee, and any lender fees. Our lender fee is lower than our other loan types. In addition to closing costs, there are pre-paid items. Pre-paids include the first year of insurance premiums (applicable hazard, flood, wind & hail), set up for tax and insurance escrows, and interim interest due to cover a partial month after closing.

VA Funding Fee

Typically, the most substantial fee is the VA funding fee which ranges from 1.25 – 3.3% of the base loan amount on a purchase. The VA funding fee is paid directly to the Veterans Administration and helps fund the program. This fee gets financed into the total VA loan amount.

The VA funding fee is included within the loan amount; however, the closings costs are now. The fee amount depends on a few factors displayed in this chart below. Furthermore, Veterans who are considered 10% or more disabled by VA are exempt from this fee. This can be a savings of several thousand dollars.

Veteran Type	Down Payment	% for 1st Time Use	% for Following Use
Regular Military	None 5% or more 10% or more	2.15 % 1.50% 1.25%	3.3 %* 1.50% 1.25%
Reserves / National Guard	None 5% or more 10% or more	2.4% 1.75% 1.5%	3.3%* 1.75% 1.5%

Veteran Type

Down Payment

% for 1st Time Use

% for Following Use

Regular Military

None

5% or more

10% or more

2.15 %

1.50%

1.25%

3.3 %*

1.50%

1.25%

Reserves / National Guard

None

5% or more

10% or more

2.4%

1.75%

1.5%

3.3%*

1.75%

1.5%

On each purchase with a VA home loan, there must be a termite inspection. If buying new construction, lenders are looking for proof of soil treatment for termites. Conversely, resale purchases require a wood destroying insect report (WDIR) to prove the home is free of termites. Some states have a different name for this report. For instance, South Carolina uses a CL100 report. Other than this requirement, it is essential to remember that the Veteran IS NOT ALLOWED TO PAY FOR THE TERMITE REPORT.

There are other potential VA closing costs which depend on the property and its characteristics. These may include a well water inspection, septic inspection, or manufactured home foundation certification. A loan originator can explain which costs apply to your purchase as well as the estimated costs of each.

Seller Paid VA Closing Costs

Now, you know there are closing costs on VA loans, but what if you don't want to or cannot bring those costs to closing? The most common way to overcome bringing these funds to closing is by seller paid closing costs and VA sales concessions. Remember, the seller is NOT required to pay the buyer's closing costs.

The amount paid must be explicitly stated in the purchase contract for the seller to pay the costs. If the seller agrees to pay a certain amount of the expenses for the buyer and the contract states the fact, then it allows the buyer to finance these costs. Here is an example to show how seller paid costs affect the required funds to close:

Sample: $200,000 purchase price and buyer's total expenses of $5,000

If the purchase contract states the purchase price of $200,000 with no seller paid costs, the buyer will bring $5,000 to closing.

If the purchase contract states the purchase price of $205,000 with $5,000 in seller paid costs for the buyer, the buyer will not bring funds to closing. In this case, borrowing the full purchase price would make the payment a little higher than the first example.

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Maximum VA Seller Paid Closing Costs

Each loan type has limits which the seller can pay towards the buyer's closing costs. VA allows the seller to pay all "customary" closing costs for the buyer. This helps a buyer. Customary closing costs do not include the pre-paids mentioned before which include insurance, escrow set up, and interim interest, but, VA allows an additional 4% of the purchase price to be paid by the seller for these AND other permitted items! This is called VA sales concessions.

VA Sales Concessions Advantages

The seller can cover closing costs and then has 4% of the price towards other areas. Besides the pre-paids, what else is allowed? VA sales concessions are the cool part of a VA loan that can create strategies to help a Veteran get into a home. VA sales concessions can cover:

Pre-paids
Buyout a buyer's current lease
Payoff buyer debt
Cover down payment
Pre-pay HOA Dues
Cover improvements not required by appraisal

We have been able to help manyVeterans use this feature to purchase their dream home. Hopefully, this has cleared up the topic of VA closing costs. The next step is to contact yourOVM Financial loan officer to not only qualify for a VA loan but also to learn a VA loan strategy which fits your goals and scenario.