VA Loan Closing Costs

Even though  Louisville VA loans have similar fees to other types of home mortgages, it is true that the Department of Veterans Affairs has made it illegal to charge a veteran certain fees. These non-allowable fees must be paid for by a third party such as the seller, the broker or the lender.

The Louisville VA guidelines state that the veteran can pay the following closing costs:  

  1. a maximum for all customary and reasonable amounts for any of the “Itemized Fees and Charges” designated by VA.
  2. A one percent (1%) flat charge by the lender
  3. reasonable discount points is also allowed. There are some special provisions, which apply to other different VA loans such as construction, improvement and repair loans.

The Department of Veterans Affairs defines allowable charges and fees that the veteran borrower can pay or closing costs that may be charged to the borrower. All of these costs are determined as reasonable and customary by each local

VA office. All other costs in the transaction are considered non-allowable. They are usually paid by the seller when purchasing a new home or by the lender when refinancing your current

 

These allowable and customary items are as follows:  

  • Appraisal and compliance inspections
  • Recording fees
  • Credit report
  • Prepaid items, including a portion of taxes, assessments, and similar items for the current year chargeable to the veteran and the initial deposit for the tax and insurance account.
  • Hazard insurance: The veteran can pay for the hazard insurance premium. This includes flood insurance, if required.
  • Flood zone determination
  • Survey
  • Title examination and title insurance
  • VA funding fee (unless exempt from the fee with a 10% minimum disability from the VA)

The Department of Veterans Affairs defines non-allowable charges and closing costs as:

Closing costs or fees that are NOT ALLOWED to be paid for by the borrower

The fees on this list MUST BE paid for by the seller or lender

  • Attorney fees
  • Brokerage fees
  • Pre-Payment penalties
  • HUD/FHA inspection fee
  • Lender’s appraisals
  • Lender’s inspections, except in construction loan cases
  • Loan closing or settlement fees
  • Document preparation fees
  • Preparing loan papers or conveyancing fees attorney’s services other than for title work
  • Photographs
  • Interest rate lock-in fees
  • Postage and other mailing charges, stationery, telephone calls, and other overhead
  • Amortization schedules, pass books, and membership or entrance fees
  • Escrow fees or charges
  • Notary fees
  • Commitment fees or marketing fees of any secondary purchaser of the mortgage and preparation and recording of assignment of mortgage to such purchaser
  • Trustee’s fees or charges
  • Loan application or processing fees
  • Fees for preparation of truth-in-lending disclosure statement
  • Fees charged by loan brokers, finders or other third parties whether affiliated with the lender or not, and
  • Tax service fees.

 

Have you ever been completely and utterly confused by the various types of financing in a real estate transaction?  YES.  It can be overwhelming!  Here is info on one of the “comeback kids” in the mortgage market… the VA Loan!

During the height of the market, many buyers and sellers neglected the VA loan in large part because of the competitive nature of market at that time.  Because we were in a seller’s market then, sellers dictated the types of financing that they would accept… VA was last on the list many times.  This was because sellers did not want to pay the sometimes higher costs associated with the loans.  Also, VA appraisers are known to be very particular.

Today, with lending standards tightening up, VA loans are making a comeback!  Here are some quick facts regarding a VA loan:

  • A VA loan is designed for veterans and active duty military personnel.
  • VA loans are federally guaranteed and require NO DOWN PAYMENT!
  • You can obtain a VA loan through private lenders such as banks, savings & loans, and mortgage companies.
  • VA offers competitive rates… sometimes the lowest around!
  • You may purchase any kind of residential property with your VA loan… but, it MUST be your primary residence at the time of purchase and for two years thereafter.  You can choose to keep the property for rental purposes if you occupy the property for two consecutive years prior.
  • There is NO PMI (Private Mortgage Insurance) on a VA loan!!!  EVER!
  • There is a cost for using your VA loan.  It’s called the VA Funding Fee.  The first time you use your VA, the fee is 2.3% of the agreed purchase price, thereafter the fee increases to 3.6%.  However, you can decrease the fee after your initial use by putting a down payment on the loan.
  • There are some individuals who are exempt from paying the VA funding fee.  These include any vet receiving compensation for service-related medical issues, and surviving spouses of those who died in service or due to service-related disabilities.
  • Your VA funding fee CAN be added to your loan balance and factored into your monthly payment.  In other words, if you qualify for the entire amount (cost of home + funding fee), you can finance the funding fee.
  • Allowable closing costs and fees are tightly structured in a VA loan in order to benefit and protect the vet.
  • It is possible to receive up to 4% in “seller concessions” (money back at closing from the seller) to use for things such as closing costs, payment of funding fee, paying points on the loan to lower the interest rate, etc.
  • Your lender cannot charge a penalty for early payment of the loan balance.
  • $475 is the costs of a VA appraisal in 2020

 

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