VA home loans available to active military and veterans are possibly the best loan available today because:
VA loans do NOT have monthly mortgage insurance, unlike FHA loans, or conventional loans with less than 20% down. There are closing costs involved with buying a house using a VA home loan even though VA loans offer 100% financing. Closing costs are in addition to the down payment and can
range from 2-4% of the purchase price. VA allows the seller to pay up to 4% of the VA buyers closing costs so it is smart to ask the seller to “credit” you at least 3 % of the closing cost to reduce your out of pocket expenditure.
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 ranging from 1-3 % of the purchase price. This offer will show the seller you are serious. 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.
Though it is optional to get an inspection on the house with a VA loan, it is highly recommended. The cost is on the buyer and usually run about $300 paid upfront. The inspector will check all aspects of the house, the structure, electrical, plumbing and more, so that you know you are making a sound investment.
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.
Though it is optional to get an inspection on the house with a VA loan, it is highly recommended. The cost is on the buyer and usually run about $300 paid upfront. The inspector will check all aspects of the house, the structure, electrical, plumbing and more, so that you know you are making a sound investment.
And lastly, you will have to pay of the VA appraisal. When you purchase a property the lender will require an appraisal on the property, this has to be ordered right away in the purchase of property. A VA appraisal current costs $400. So to recap, in the beginning stages of buying a house, you will have to come up with an earnest money deposit, $300 for a home inspection and $400 for an appraisal.
The rest of the costs are paid when you close on the house. The closing costs can be broken into 4 categories; lender fees, title/escrow fees, reserves and pre-paids taken by the lender. There are certain fees that the VA borrower is NOT allowed to pay. These will have to be paid by the seller. The major fees the VA borrower is NOT allowed to pay for are:
When you buy a house, the closing is handled by an escrow company. There fees are an escrow fee, notary public fee, and a few other fees for handling the closing. These fees will not have to be paid by the VA borrower, but they will have to be included in the credit that you ask for from the seller. These fees can amount to on average over $1,000. Additionally when you buy a house you will be required to obtain 2 title insurance policies, owners and lenders. 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. It will be around $400 for a $300,000 house.
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.
Reserves Held by the Lender Another aspect of a VA home loan is that the lender will collect a reserve of property taxes and homeowners insurance. The lender can require up to 9 months of property taxes paid up front at closing. This can be a large expense. If your property taxes are $400/mo, this means the lender could potentially take a reserve of $3,600. Also, the lender will take a few months of your homeowners insurance up front in advance. Be aware of this cost at closing or arrange for the seller to credit you this cost. Property tax reserves are required by the VA lender and one of the largest costs related to closing. Be sure to prepare for them if this is not fully explained up front by the lender. Remember, this is really not a loan cost as these property taxes are what 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.
A requirement from the VA lender is that you to pay an entire 12 months of homeowners insurance policy in advance. All lenders require that you keep a homeowners policy on a property if there is a mortgage on it. This will insure against fire and other disasters that could damage your house. Paying 12 months in homeowners insurance up front can total anywhere from $400 to $1,000 or more. Call your insurance agent for a quote as the cost will depend on where your property is located and the purchase price.
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.
Thee closing costs associated with buying a home with a VA home loan can total from 2-4% of the purchase price. It is very important to either plan to have money set aside for these costs or work with the real estate agent who will represent you to negotiate with the seller to pay for your closing cost
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