Veterans Affairs mortgages, better known as VA loans, offer considerable benefits for eligible military veterans, service members and spouses who want to buy a home.
With that said, there is some confusion surrounding what can and can’t be charged to the veteran at closing. The article below will outline some of the benefits of the VA loan as well as the fee structure associated with the loan.
VA loans generally offer more competitive rates compared to conventional financing. In many cases, these loans consistently offer the lowest rates on the market, according to reports by mortgage software firm Ellie Mae.
VA mortgages are made through private lenders and are guaranteed by the Department of Veterans Affairs, so they don’t require private mortgage insurance, known as PMI.
Most members of the regular military, veterans, reservists and National Guard are eligible to apply for a VA loan. Spouses of military members who died while on active duty or as a result of a service-connected disability also can apply.
The seller is allowed to pay all of the veteran’s closing costs, up to 4% of the home price. So, it is possible to avoid paying anything out of pocket to close your home purchase.
If you have little or no funds available for closing cost, let your real estate agent know that you are purchasing your home with a VA loan. Your agent may be able to request that the seller pay for some or all of your closing costs.
Also, the VA limits the amount of fees the lender can charge. This is a great benefit to the VA loan.
Fees Not Allowed to be Charged to the Veteran
Some fees are not allowed to be charged, per VA loan guidelines. Here are the specifics:
An attorney fee cannot be charges unless it is for anything besides title work.
Escrow Fee/Settlement Fee/Closing Fee
This is a fee the lender sometimes charges up front before the borrower takes an application. This is not allowed on VA loans.
Mortgage Broker Fee
Sometimes charged by mortgage brokers when they broker a loan out to the lender.
Closing Protection Letter (CPL)
The CPL fee is often included in the escrow fee but sometimes charged separately. It is a letter that makes the title company responsible if escrow does not appropriate loan proceeds correctly.
Document Preparation Fee
Fee charged by escrow for preparing final loan documents.
Courier Fee/Postage Fees
Sometimes there are original documents that need to be hand-carried or sent via overnight service, and can’t be emailed or faxed. In this case, the escrow company will often charge a courier fee to ensure these services are paid for. The veteran is not allowed to pay these fees.
Fees charged by escrow to send a notary to the borrower for a signing appointment outside escrow’s office.
The veteran cannot pay for a termite inspection or report in all but 9 states in the US.
Tax Service Fee
This fee is paid to the mortgage company to ensure they pay the real estate taxes.
The Fine Print
This list of allowable and non-allowable fees above is not all-inclusive and there may be other fees on your purchase transaction that are not mentioned here. In that case, it’s best to contact your lender to find out if the charge is allowable on VA loans.
Fees That Can Be Charged to the Veteran
VA Upfront Funding Fee
This fee goes directly to the Veteran’s Administration to defray the costs of the VA program. This is not a fee that is generally paid for in cash at closing – usually VA homebuyers opt to finance it into their loan amount. If the fee is wrapped into the loan amount, it does not increase the total amount of cash needed to close the loan.
The appraisal is paid by the veteran and is usually paid at closing. For more regarding appraisals, go here….
The VA limits the lender’s compensation on VA loans to 1% of the loan amount. This fee is meant to compensate the lender in full. Fees for items such as processing and underwriting may not be charged if this 1% fee is charged to the veteran.
Third Party Fees
Companies involved in the transaction other than the lender are called third parties. Examples are title and escrow companies, credit reporting agencies, and appraisers. Their charges are called third party fees. Common fees are title insurance policies, recording fee, credit fee, and flood certifications.
Prepaid items are items the buyer has to pay in advance. Lenders require insurance policies and taxes to be paid in advance. Not paying for taxes and insurance can jeopardize the integrity of the collateral for the loan, which is the house.
More Information Available
For more information regarding VA loans and eligibility, don’t hesitate to contact me – as it would be my pleasure to help!