VA home loan closing costs are subject to a detailed protocol set forth by the VA. From how much veterans can be charged to who can pay for different costs – VA mortgage closing costs must meet VA’s standards.
Specific VA home loan closing cost rules protect veterans from being overcharged for a new mortgage. In fact, VA regulates who may pay closing costs on a VA home loan. Additionally, VA sets guidelines for what closing costs and how much each party may pay.
FAQ’s: VA Mortgage Closing Costs
VA home loan closing cost rules loans are often confusing. As a result, Veterans often have questions about their costs. Below are some of the most frequently asked questions on the subject of VA loan closing costs.
Yes, in fact a VA loan typically has the same basic closing costs as a non VA loan. However VA mortgage rules control what a veteran may and may not pay.
For veterans required to pay a funding fee, the fee may be (and most commonly is) financed into their VA home loan. However, veterans may pay some or all of the funding fee out of pocket. Additionally, willing seller may also pay some or all of the veteran’s VA funding fee.
In short, no a seller does not HAVE to pay any costs. However, confusion arises surrounding VA Non-allowable fees. While fees exist that Veterans cannot pay this does not mean the burden has to fall on the seller.
Yes, eligible consumer and other debt of the veteran that are NOT directly related to the loan can be paid off at closing by a seller. In fact, this can often help a veteran qualify for a new home loan.
In most cases yes. Typically, VA lenders use something called premium pricing to pay a veterans closing costs.
3 VA Closing Costs Rules
To summarize, VA has 3 rules governing who can pay what Arizona VA home loan closing costs.
- The 4% Rule
- Unlimited Non-Recurring Closing Costs Rule
- VA Non-Allowable Costs
1. The 4% Costs Rule
First, VA has a 4% Rule. The rule states sellers may pay VA borrower’s closing costs in an amount equal to up to 4% of the appraised value of the home they are buying. For example:
Appraised Value $400,000. x 4% = Amount seller may pay in borrower closing costs $16,000
However, several costs are NOT included in this limitation. The 4% total does NOT pertain to “non-recurring” costs or bonafide discount points. For example, the following costs are not subject to the 4% Cost Rule limitation:
- Seller payment of the VA Funding Fee
- Seller’s pre-payment of buyer’s property taxes and insurance
- Payment of permanent interest rate buy-down points
- Seller paying off credit balances or judgments on behalf of the VA borrower
- Gifts from the seller (ex: TV or microwave)
2. Non-Recurring Closing Costs
In addition to the 4% rule, VA allows a seller pay 100% of fees categorized as Non-Recurring Closing Costs. In other words, on top of paying up to 4% of appraised value toward closing costs sellers can pay 100% of the following:
Non-Recurring Closing Costs
- Title Work
- Recording fees
- Credit report
- Discount points
- Other lender fees
3. VA Non-Allowable Fees
Lastly are costs categorized as “Non-Allowable“. VA uses this category for specific fees they determined VA borrowers cannot pay. However, the seller, the buyer’s agent and/or the buyer’s lender may pay for these fees.
As a result of the details surrounding VA Non-Allowable Fees, they are a category worthy of their own page. Check out our informative page on VA Non-Allowable Fees
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