They provide many advantages such as zero down payment, competitive interest rates, and lower fees compared to other types of loans. While the overall cost of obtaining a VA loan can be quite low, there are certain fees that borrowers should be aware of in order to make an informed decision.
The primary fee associated with VA loans is the funding fee. This fee is charged by the Department of Veterans Affairs (VA) in order to cover the cost of administering the loan program. It is based on the type of loan being taken out and the borrower's military status. Generally speaking, buyers who served on active duty for at least 90 days can expect to pay 2.3 percent of the loan amount. For first-time home purchasers, this amounts to just over $2,000 on a $200,000 loan.
In addition to the VA funding fee, borrowers may also be responsible for other costs such as title exams, appraisal fees, and origination fees. Title exams are typically performed by an attorney or other professional in order to check the accuracy of the deed, title search, and other documents related to the property. Appraisal fees are paid to appraisers in order to determine the market value of the home. Lastly, origination fees cover the cost of processing the loan. These fees can range from 0.5 to 1.0 percent of the loan amount, but may be waived for veterans.
When it comes to closing costs, VA loans may also require fees such as title insurance premiums, inspection fees, recording fees, and closing costs. Title insurance premiums protect the lender in case of any disputes over the property title. Inspection fees cover the cost of any inspections or tests that must be completed before closing. Recording fees pay for the recording of the deed and other documents in the county office. Lastly, closing costs are miscellaneous fees that are associated with the closing process. They generally include things such as attorney and notary fees.
Veterans should be aware of the fees associated with VA loans before they decide to move forward with purchasing a home. Though the overall cost may still be lower compared to other types of loans, understanding the fees will ensure the most accurate budgeting and financing decisions are made. Furthermore, asking questions and doing research can help ensure that borrowers are prepared for all the costs associated with taking out a VA loan.
This article was contributed on Oct 29, 2023
