A VA loan comes with a major benefit for veterans and military members: the ability to buy a home with no down payment.
But you'll still owe closing costs to finalize a home loan backed by the U.S. Department of Veterans Affairs.
Don't let these final costs scare you off from buying a home — or catch you off guard.
» MORE: Best VA lenders
How much are VA loan closing costs?
Closing costs include the various fees required to settle a home loan. Generally, closing costs range from about 3% to 5% of the loan amount.
Like other mortgages, VA loan closing costs include such fees as:
Appraisal fee: For a VA loan, the appraisal estimates the home's value and determines whether the property meets the VA's minimum standards. The VA limits how much appraisers can charge.
Discount points: These are optional fees you can pay to lower the interest rate.
Government recording fees: This is what you’ll pay to update local property ownership records.
Loan origination charges: This covers underwriting and processing the loan.
Local and state taxes: Some taxes you can expect include transfer taxes and recording taxes.
Prepaid expenses: This includes home insurance and property tax.
Title-related costs: This may include title insurance, title search fee and others.
NERDY EXPERT
Jesse Haddad | Loan Officer at NextDoor Lending, a wholly owned subsidiary of NerdWallet
“ If you end up doing your VA benefits after you close your loan … they can retroactively refund you that difference on the funding fee. A lot of veterans don't know that. ”
VA funding fee
VA loans don't include mortgage insurance. But they do include a special charge called the VA funding fee. The fee helps cover the VA's costs for guaranteeing loans. If a borrower defaults on a loan, the VA repays the lender a portion of the outstanding balance. The guarantee allows lenders to offer VA loans at competitive rates without requiring a down payment.
For purchase loans, the VA funding fee depends on the size of your down payment and whether this is your first or a subsequent VA mortgage.
Funding fee for a first purchase or construction loan
Down payment | Funding fee |
|---|---|
Less than 5% | 2.15% |
5%-9.9% | 1.5% |
10% or more | 1.25% |
Funding fee for a subsequent purchase or construction loan
Down payment | Funding fee |
|---|---|
Less than 5% | 3.3% |
5%-9.9% | 1.5% |
10% or more | 1.25% |
Funding fee for a refinance loan
Loan type | Funding fee |
|---|---|
Cash-out refinance, first use | 2.15% |
Cash-out refinance, subsequent use | 3.3% |
Interest Rate Reduction Refinance Loan, or IRRRL | 0.5% |
Some borrowers are exempt from the VA funding fee, including:
Veterans who are eligible for compensation for service-connected disabilities.
Service members on active duty who have received a Purple Heart.
Surviving spouses who are receiving dependency and indemnity compensation.
Closing cost limits
The VA prohibits and limits some fees for borrowers.
Attorney fees: Lenders can't make you pay attorney fees, except for title work, although you can hire and pay for a real estate attorney on your own.
Loan origination charges: Lenders cannot charge more than 1% of the loan amount for purchase mortgages. For construction loans, lenders can charge up to an additional 2% of the loan amount; the allowed amount depends on how much the lender advances to the veteran or supervises the project.
NerdWallet writer Isabella Angelos contributed to this story.
How can I avoid paying closing costs with a VA loan?
- Ask the seller to pay some of your closing costs. The VA limits the amount the seller can pay to no more than 4% of the loan amount. However, note that sellers may not be willing to pay in a competitive real estate market. Work with your real estate agent to decide how to negotiate.
- Get help through a closing costs assistance program. Many states offer programs for first-time home buyers, including zero-interest loans and grants to cover closing costs.
- Roll the VA funding fee into the loan. This will cut your upfront out-of-pocket costs, but it will increase your monthly mortgage payment.
