VA Loans: How To Save On Closing Costs
Closing costs are an integral part of any VA home loan. The processing and approval of a VA home loan application requires more information and services than your VA lender. And if you’re not careful, you’ll pay more than you need to.
VA loans limit the types of closing costs that veterans can pay, but even with these limitations there are closing costs. Here are some ways to reduce them or avoid paying them completely.
Closing costs authorized by the VA
What fees can the veteran pay? One of the easiest ways to remember is to use the acronym ACTORS. This represents the appraisal, credit report, title insurance, set-up costs, registration and investigation or summary costs. The VA finance charge is also a fee, but can be built into the loan amount and not be paid out of pocket.
This list leaves many other players out of sight and is a tremendous advantage that eligible VA borrowers have over others. What kind of fees? Common fees that veterans are not allowed to pay include loan processing, loan underwriting, document preparation fees, escrow fees, settlement fees, and a host of others. Added together, these fees can exceed a few thousand dollars, depending on the loan amount, location and other factors.
So how much are the charges for the charges that the veteran is authorized to pay? Let’s look at a house with a sale price of $ 300,000, this is what you might see:
Assessment $ 500 Credit Report $ 50 Title $ 3,000 Origin $ 3,000 Registration $ 100 Total $ 6,650
Even though VA loans limit the amount of costs the veteran can afford, it can still be a significant number. Here’s how to save or eliminate them.
The most convenient way is to have them paid by the seller. When making an offer on a home, your agent may ask the seller to pay a certain percentage or amount of your closing costs. The VA guidelines allow a seller to pay up to 4 percent of the selling price of the house to go directly to the veteran’s closing costs. In this example, it could go up to $ 12,000, well above what the borrower could pay.
If that’s not all of the costs, maybe just some of them. If your offer says something like “We’ll pay the asking price, but we want you to pay all of our closing costs up to 4% of the selling price.” What can the seller do? Three choices:
- Pay them all
- Pay some of them
- Don’t pay any of them
Another way to reduce or eliminate VA loan closing costs is to ask the lender to provide lender credit. How does a lender credit work? When you discuss the different interest rate options with your loan officer, as well as a loan term such as a fixed term of 30 or 15 years, you will also receive a list of rates with points and rates without points. .
Points, called “discount points” in the industry, are represented as a percentage of the loan amount. For every point paid, the interest rate can be reduced by about a quarter of one percent on a 30-year mortgage. You might be quoted something like “4.50% with no points or 4.25% with a point.” On a loan of $ 300,000 over 30 years, one point will cost you $ 3,000.
Conversely, a lender may actually increase your interest rate by a quarter of a percent or more and provide you with lender credit to apply towards your closing costs. Using this same example, you could be quoted 4.50% no points, 4.75% no points and a credit of $ 3,000 or 5.00% for a lender credit of $ 6,000.
It is your choice and something that you should consider with your lender. Your monthly payment will be slightly higher, but then again, you’ve saved $ 6,000.
There is no way around the costs of closing a VA loan, it is just a matter of who pays them. Correctly structured, you may not have to.
Ready to start?
If you are ready to get started or just want more information about the process, the first step is to get several quotes without obligation. You can then discuss qualifications, debt-to-income ratios, and any other concerns you have regarding the process with lenders.
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