The Costs to Consider When Applying for a VA Loan
Guaranteed by the U.S. Department of Veteran Affairs, VA loans are offered to honor the selfless service of our armed forces veterans. The loan is designed to help eligible veterans or their surviving spouses realize their dream of homeownership. VA loans are provided at lower interest rates compared to other loans, and the borrower typically does not have to pay a down payment, or minimal at worst. Borrowers also do not have to get mortgage insurance, which further lowers the total cost of the loan. Whether you are a veteran or a surviving spouse, opting for a VA loan can help you buy your dream home. It is, however, important to learn about the pros and cons of VA loans and the associated costs.
1. Funding Fee
When applying for a VA loan, although you won’t be required to pay a down payment, you will be required to pay a funding fee. The VA considers various factors, such as the service type, down payment amount (if you decide to put down a sum as down payment), and whether it is your first loan, second loan, etc. The VA, however, waives this fee for veterans with a VA rated disability and receiving respective compensation. The VA program does allow buyers to finance this amount into their loan, though.
2. Interest Rate
Interest rates for VA loans are considerably lower as compared to that for conventional options. If you are confused about your total interest costs, our experts can help. We may even be able to suggest tips for improving your interest rate opportunities such as improving your credit score, paying off judgments or liens, improving your debt-to-income ratio, or anything else that would reduce the appearance of “risk” to pricing engines.
3. Closing Costs
VA loan closing costs typically range anywhere between 1-3 percent of the total loan amount on expensive homes and 3-5 percent for less expensive ones. Some common closing costs are:
4. Origination Fee
The VA allows lenders to charge a 1 percent origination fee that helps cover wages and commissions paid to the loan officer and processors working on your mortgage.
5. Appraisal Costs
The lender contacts the VA to appraise the value of the property. VA, in turn designates a certified appraiser who charges a fee of $500 to ascertain the home’s value and to ensure it meets requirements laid out by the VA.
6. Recording Fee
You will have to register the refinance or purchase of your home with your local county that will charge anywhere between $20-$250 for its services.
7. Credit Report Fee
Before approving your application, the lender will want to have a look at your credit score. To get your credit report, the lender will contact a credit reporting agency that will charge $35 for its services, or more if additional “fact-finding” is required. At Service First Mortgage, we typically do not charge a credit report fee.
8. Flood Certification
Buyers whose property lie in a flood zone will have to get a flood certification that typically costs $20. The borrower will also have to get flood insurance, where the premiums can range anywhere between $300-$1,000 per year.
9. Title Examination Fee
A title insurance company will conduct research to ensure the property does not have any existing liens. The cost of this service usually varies between $600 to $800 depending on the amount of the loan.
Fees the Lender is not Allowed to Charge
Attorney fees to cover services other than helping with the title work.
Lock-in fees (to lock interest rate)
Mortgage broker fee
Tax service fee
Of course, this is not an all-inclusive list of the costs charged by lenders and you should always request a detailed cost breakdown called a Loan Estimate before signing on the dotted line. If you are confused about a loan program and want to discuss further, please contact us today.