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Do you know if your VA loan closing costs are covered by your VA mortgage?
Depending on how you structured your VA loan, closing costs on VA mortgages not included in the mortgage price can run anywhere from 2% – 5% of the price of the home. If your VA home loan closing costs are not included in your VA loan, they will be considered out-of-pocket costs that you will have to pay. Considering this, you’ll want to know how to structure your loan to avoid paying closing costs on VA loans before you sign your loan contract.
Keep reading to learn more about the VA home loan closing cost process and how you may be able to avoid out-of-pocket expenses.
If you have any questions that you would like to ask a qualified lending specialist, then please get in touch with us today. You can give us a call at 888-775-1585 or begin a live chat with a helpful representative by clicking here.
The Basics of VA Mortgage Closing Costs
The U.S. Department of Veteran Affairs outlines specific items that may be charged to borrowers such as home inspections, the borrower’s credit report, hazard insurance, recording fees, and title examination and title insurance, to name but a few. Many home loans also include a list of “prepaid items” – these charges include remaining taxes and assessments owed for the remainder of the taxable year. In a typical loan, these itemized fees and expenses are included as closing costs and are kept separate from the mortgage price, and homebuyers are expected to pay for these costs on the date of closing. However, VA loan applicants do have the option to structure their mortgage loan to include closing costs as part of the total amount financed.
Current VA Loan Closing Cost Rules
The current VA loan closing cost rules allow for 3.3% financing without private mortgage insurance (referred to as PMI) or a VA loan down payment. This means veterans may borrow the entire sales price of the home plus an additional 3.3%, which can be used to offset out-of-pocket expenses, or finance additional costs of the loan such as the VA funding fee and VA loan closing costs. In an economy struggling after the housing market crash of 2008, the benefit of being able to finance these extra expenses is a rarity as many private mortgage companies have pulled this option for typical borrowers.
Structuring Your VA Loan Closing Costs
To structure your VA loan closing costs into your overall financing, you’ll need to add the closing costs to the mortgage. Initially, your VA loan amount will be either the appraised value of the home, or the purchase price of the home (whichever is less), plus the VA funding fee. To include VA closing costs in the overall financed amount, you’ll need to increase the final financed amount to include the sale price of the property plus closing costs – likely climbing up to that 3.3% allowed by law. The VA agrees that closing costs can be financed as part of the loan, as long as they do not exceed 6% of the sales price of the home.
Your lender can help you calculate the exact closing costs you’ll be facing, and in turn this information will help you determine whether or not you should consider borrowing up to the maximum VA loan amount. If your loan does include VA closing costs, be sure that your real estate contract includes a formal stipulation with the seller outlining that closing costs and any prepaid items will be covered under the price increase.
Speak To a Qualified Specialist Today
If you are interested in learning more about how to structure your VA loans and the ways a qualified lender can help you, then get in touch with our representatives today.
We would be happy to answer any questions you may have. You can get in touch with us by giving us a call at 888-775-1585 or by clicking here to fill out our online contact form. If you would like to get the process started right away, you can fill out our pre-application form by clicking here
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