VA home loans available to active military and veterans are possibly the best loan available today because:
The loan offers 100% financing, no down is payment required The loan is a 30 year fixed interest rate, and interest rates are close to the lowest they have EVER been
VA loans are not credit score driven and have flexible underwriting guidelines to get active military and veterans qualified
VA loans do NOT have monthly mortgage insurance, unlike FHA loans, or conventional loans with less than 20% down
Although VA loans offer 100% financing, there are still costs involved with buying a house with a VA loan. These costs outside of the down payment are known as closing costs. Closing costs on a VA loan can range from 2-4% of the purchase price. VA allows the seller to pay up to 4% of the VA buyers closing costs. Therefore it is very smart when you make an offer to buy a property to ask the seller to credit you for at least 3% of your closing costs. This can dramatically reduce the out-of-pocket expenses to the VA home buyer to get into a home.
There are 3 major upfront costs required when buying a house with a VA loan; the earnest money deposit, home inspection fee and appraisal fee. When you make an offer to buy a home, it is customary to put up an earnest money deposit with your offer to show the seller you are serious. This can range from 1-3% of the property purchase price. These deposit funds will be held with an escrow company after your offer is accepted. If you negotiate for the seller to pay all of your closing costs, you will get this money refunded when you close on the house.
You will have to pay the appraisal. When you purchase a property, the lender will require an appraisal on the property. A VA appraisal currently costs $400.
The third cost is a VA appraisal. These run about $400 and are required by the lender. The appraiser will appraise the property and make sure the property is not less than the loan amount.
Title and Escrow Fees When you “close” your house, it will be handled by an escrow company. They will have a variety of fees to handle closing such as an escrow fee, and notary public fee. These fees will have to be included in the credit that you ask for from the seller and can amount to over $1,000 on average. When you buy a house you will be required to obtain title insurance. There are 2 title policies you must have, an owners and lenders policy. The seller will typically pay for the owners policy and the buyer will pay for the lenders policy. The cost of title insurance depends on cost of the property. For a $300,000 house the fee will probably be around $400.
Title and Escrow Fees When you “close” your house, it will be handled by an escrow company. They will have a variety of fees to handle closing such as an escrow fee, and notary public fee. These fees will have to be included in the credit that you ask for from the seller and can amount to over $1,000 on average. When you buy a house you will be required to obtain title insurance. There are 2 title policies you must have, an owners and lenders policy. The seller will typically pay for the owners policy and the buyer will pay for the lenders policy. The cost of title insurance depends on cost of the property. For a $300,000 house the fee will probably be around $400.
There are costs related to the lender fees. There is generally an underwriting fee, processing fee, credit check fee and possibly an origination fee. The seller has to pay the underwriting and processing fee. The origination fee can vary depending on your interest rate. If you want to lock in the lowest interest rate, a lender can charge up to 1% of the loan amount as an origination fee. Additionally, if you want to buy down the interest rate below market, you can pay discount points to get an even lower than market rate.
Reserves Held by the Lender When you obtain a VA home loan the lender will collect a reserve of property taxes and homeowners insurance. Be prepared to pay as much as 9 months of property taxes paid up front at closing because the VA lender sometimes asks for this much in advance. If your property taxes are $250/mo, this means the lender could potentially take a reserve of $2,750. In addition, the lender will take a few months of your homeowners insurance up front in advance. It is very important for you to plan for this cost at closing or arrange for the seller to credit you this cost. Property tax reserves required by the VA lender are one of the largest costs related to closing. But remember, this is really not a loan cost. These are property taxes that you will have to pay anyway as part of ownership; you are just paying them in advance. If you sell or refinance, you will get a refund of any remaining property taxes or home owners insurance held in reserve by the lender.
The VA lender will require you to pay an entire 12 month homeowners insurance policy in advance. To insure against fire and other disasters, all lenders require that you keep a homeowners policy on a property. Paying 12 months in homeowners insurance up front can total between $400 to $1,000 or more. Please call your insurance agent for a quote. The cost will depend on where your property is located and the purchase price
The VA charges a 2.15% funding fee for VA borrowers using their VA eligibility for the 1st time and 3.3% for those using it for the 2nd time or subsequent times. If you have 5% or more down payment, this funding fee is less than the above stated percentages. Also, if you have a 50% or greater VA disability rating the funding fee is completely waived. VA allows this fee to be rolled into your loan. You do NOT have to come out of pocket for this fee.
These are the major closing costs associated with buying a home with a VA loan. As mentioned, total closing costs can range from 2-4% of the property purchase price which can be a fairly large number.
In summary, these are the major closing costs associated with buying a home with a VA loan. As mentioned, total closing costs can range from 2-4% of the property purchase price. That can be a fairly large number. So it is very important to either plan to have money set aside for these costs or work with the real estate agent representing you to negotiate with the seller to pay for your closing costs.
Tags: Mortgage