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VA Loans and Closing Costs

Written by Posted On Thursday, 06 June 2019 05:30

VA loans were part of the original Servicemen’s Readjustment Act of 1944, more commonly referred to as the G.I. Bill. In this act were various entitlements provided soldiers returning from WWII designed to help them more easily assimilate back into civilian life. Funds for college and job training was available as well as the new loan program to help buy a home.

Today, for those who are eligible, the VA loan is the best option for those seeking to buy a home with as little cash as possible. The VA loan does not need a down payment but at the same time limits the types of closing costs the veteran is allowed to pay. No down payment and reduced closing costs make for a powerful combination.

Your loan officer will provide a list of expected closing costs you’ll see at the settlement table. These costs are close estimates with little to no variance allowed. For services which the borrower can choose the provider independently there are no restrictions on how much the initial estimate varies from the final settlement statement. Which closing costs the veteran can’t pay for?

There can be many but it’s probably easier to identify the ones the borrower is allowed to pay. Any other charge must be paid for by someone else such as the sellers in the form of a seller contribution or even the mortgage company by issuing a lender credit.

The veteran can pay for an appraisal, credit, title insurance and title-related charges, origination charges, recording and a survey where needed. Many loan officers use the acronym ACTORS to remember which fees are allowed to be paid for by the sellers.

Sometimes there can be an issue where the lender wants another appraisal completed beyond the initial one. The veteran is allowed to pay for the extra appraisal as well. Common fees the veteran can’t pay for might be an escrow fee or an attorney charge or document preparation. Again, your loan officer will provide this list.

Still, that leaves the third party fees the veteran isn’t allowed to pay for. Who pays those? The seller can contribute as much as 4.0 percent of the sales price to go toward buyer closing costs, which should more than cover what’s left over. The lender can also contribute by adjusting the interest rate on the loan slightly higher and then provide a credit at the closing table. Or, a combination of both. The better option is to have the seller pay the necessary charges in lieu of taking a higher rate. But that’s completely between you, your agent and the seller’s agent.

All mortgage loans, VA included, come with needed closing costs. There are multiple third party services and documents needed to close a mortgage. The difference is who’s going to pay for them. Veterans are restricted from paying certain types of closing costs, but without the additional third party services needed, the loan won’t be able to be approved.

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David Reed

David Reed (Austin, TX) is the author of Mortgages 101, Mortgage Confidential, Your Successful Career as a Mortgage Broker , The Real Estate Investor's Guide to Financing, Your Guide to VA Loans and Decoding the New Mortgage Market. As a Senior Loan Officer and Mortgage Executive he closed more than 2,000 mortgage loans over the course of more than 20 years in commercial and residential mortgage lending.

He has appeared on CNN, CNBC, Fox Business, Fox and Friends and the Today In New York show. His advice has appeared in the New York Times, Parade Magazine, Washington Post and Kiplinger's as well as in newspapers and magazines throughout the country.

Reed was the former Technology Chair for the Texas Mortgage Bankers Association, Board Member and President of the Austin Mortgage Bankers Association. He is married and a father of three in Austin.
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