What are the closing costs included in a VA zero down payment mortgage? Is there really such a thing as a no-cost closing?
The VA home loan has been one of the most helpful channels for America’s modern day heroes to get a place they can call home.
With its zero down payment benefit, no credit check and income verification perks, along with a low interest rate, the VA home purchase loan option is considered the best home purchase program available today.
Unfortunately, many buyers are misled by the VA’s promise of a zero down payment mortgage.
You see, the VA certainly does not strictly ask for down payment money when you buy a home with a VA mortgage. But that does not mean you pay zero at closing. Closing costs differ from down payment cost.
So what costs will you expect at the closing of a VA loan? Are you really required to shell out your money at the end of the deal? Let’s get to the details.Get today’s mortgage rates!
You might be thinking why the VA lender would require a credit check for a loan that does not require it in the first place.
The truth is, some lenders originating VA loans may still check your credit report to make sure that you are creditworthy. These lenders are not penalized for doing so, and may actually be the SOP if a mortgage applicant shows a high debt-to-income ratio or a low income.
Having a low score, however, does not automatically disqualify a borrower from the mortgage.
Typically, this fee can cost you around $30.
Lenders charge buyers a fee of about 1 percent of the overall loan amount for originating the loan. This includes lender fees, origination and underwriting fees, etc. There is a limit as to what the lenders can charge for an origination fee.
An appraisal process is a mandatory process that ensures that the home you are going to buy with a VA loan meets the property standards set by the department. It also determines the market valuation of the home.
A state-certified appraiser will evaluate the property, taking note of the needed repairs, security issues, safety, etc. Appraisal fees may vary by state but they average at $300 to $500.
While the VA appraisal is mandatory, a home inspection isn’t. Costing the home buyer around $50 to $150, it is a wise expense if you want to make sure you’re not moving into a tear-down property.
It’s a tool used by many buyers to determine what needs to be repaired on the home first before they move. If any, they may negotiate with the seller to pay for the needed repairs or lower the original purchase price.
An earnest payment is a form of deposit that you give to the seller to show your ‘earnest’ intent in pursuing the sale of the property. It is a way to show your good faith in the contract.
If the deal is successful, the earnest money will go to your down payment or the cost of closing. However, if it fails, there is a possibility that you can lose a part or all of your earnest money.
Earnest deposits may cost around one to ten percent of the purchase price of the property.
This is the fee paid by buyers for the service of transferring the property title from the previous owner to their name/s. Like the recording fee, a real estate transfer tax also differs in amount from state to state.
This fee buffers you and your lender from any misfortune caused by issues with a property title. The overall cost not only vary by state but also with the price of the property being insured.
Homeowners association fees can cost the homeowner around $200 to $400 a month. Homeowners association fees are those fees used to pay for the upkeep of common local zones. This is an expected cost when you purchase a townhouse or a condominium unit.
This is the fee charged for registering your property ownership to the government books and other public records. Recording fees also greatly vary by state.
Your real estate agent can help you crunch the numbers needed for closing. As each case depends on the locale of the purchase, no specific determinations can be made in this article but figuring it out, state-wise shouldn’t be a big deal for your agent.
On average, the average cost of closing on a nationwide basis can be around 1 to 3 percent of the purchase price of the property on a VA, zero down payment mortgage.
But here’s the catch
You may have the option to wrap the cost of closing to your overall loan balance in a lender-paid closing. In this case, the lender may charge you a higher interest rate.
Another alternative is to let the seller pay for the costs of closing. By law, sellers can pay up to four percent of the home’s value. The amount that they can cover may also include other fees such as the VA funding fee, and the property taxes, among others.
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