VA-backed home loans can reduce some of the upfront barriers to homeownership, often allowing eligible borrowers to purchase without a down payment or monthly mortgage insurance. However, borrowers should still prepare for closing costs and other expenses due when the transaction is completed.
VA loans are generally intended for eligible service members, veterans, and surviving spouses purchasing or refinancing a home for personal occupancy. They are not designed to finance non-owner-occupied investment properties. VA eligibility guidance states that the home must be for the borrower’s own occupancy.
Closing costs are the lender, third-party, government, and prepaid expenses associated with completing a mortgage transaction. The amount varies based on the property, loan amount, location, lender, and negotiated terms.
Although the Department of Veterans Affairs guarantees a portion of a VA-backed loan, the financing generally comes from a private lender. The borrower may therefore encounter many of the same settlement expenses associated with other mortgage programs, along with certain VA-specific costs.
The VA funding fee is a one-time charge that helps support the VA home loan program. It is not the same as monthly mortgage insurance.
The amount generally depends on:
For VA-backed purchase and construction loans, the funding-fee rates currently listed by the VA are:
These rates have been effective since April 7, 2023, but borrowers should confirm the applicable rate before closing. The fee may generally be paid at closing or financed into the loan. Financing it reduces the amount needed upfront but increases the loan balance and total interest expense.
Certain borrowers are exempt, including some veterans receiving or eligible to receive compensation for service-connected disabilities, qualifying surviving spouses receiving Dependency and Indemnity Compensation, and certain active-duty service members who have received a Purple Heart. Complete requirements are available through the Department of Veterans Affairs.
A VA-approved appraiser evaluates the property to estimate its value and determine whether it meets applicable minimum property requirements. The appraisal fee varies by location and property type.
A VA appraisal is not a substitute for a home inspection. An inspection can provide additional information about the property’s condition, systems, and potential repair needs.
The lender may charge permitted fees for originating, underwriting, and processing the loan. VA rules restrict which fees may be charged to the borrower, so applicants should review the lender’s Loan Estimate carefully.
Discount points may also appear as a closing cost when a borrower elects to pay an upfront amount in exchange for a lower interest rate.
The lender may obtain a credit report to evaluate the borrower’s credit history and existing obligations. The associated fee is generally included among the loan’s closing costs.
A title search examines public records to identify ownership interests, liens, judgments, or other issues affecting the property.
Lender’s title insurance protects the lender against certain covered title defects. An owner’s title insurance policy, when purchased, provides separate protection for the homeowner.
State or local agencies may charge fees to record the deed, mortgage, or deed of trust. Transfer taxes and other government charges may also apply depending on the jurisdiction.
Prepaid expenses are not always classified as loan fees, but they affect the total amount required at closing. These expenses may include:
The amount can vary substantially based on the closing date, property location, insurance costs, and tax schedule.
There is no universal percentage that applies to every VA loan. Total costs depend on factors such as:
The Loan Estimate provided by the lender offers the most useful transaction-specific estimate. Before closing, the Closing Disclosure should be reviewed against that estimate to identify any material changes.
On a VA purchase or construction-permanent loan, only the VA funding fee may generally be added to the loan amount. Other closing costs must ordinarily be paid at closing or covered through permitted credits.
Closing costs may be paid through a combination of borrower funds, seller-paid costs, lender credits, and other permitted sources.
The buyer and seller may negotiate payment of expenses such as the appraisal, title insurance, recording charges, taxes, discount points, and loan-origination fees.
The VA does not impose a general limit on seller credits used for ordinary loan closing costs. However, separate seller concessions are limited to 4% of the property’s reasonable value.
Seller concessions can include items such as:
The purchase contract and Loan Estimate should clearly identify which expenses the seller has agreed to pay.
A lender may offer a credit toward closing costs in exchange for a higher interest rate. This structure can reduce the amount due at closing but may increase the borrower’s monthly payment and total interest expense.
Borrowers should compare both the upfront savings and the long-term cost before accepting a lender-credit arrangement.
Interest rates, lender fees, discount points, and credits can vary. Comparing standardized Loan Estimates from several VA-approved lenders can reveal meaningful differences in both upfront and long-term costs.
Borrowers who may qualify for a funding-fee exemption should confirm that status with the lender before closing. In some circumstances, a borrower who receives a qualifying retroactive disability award after closing may be eligible for a refund.
A purchase offer may request that the seller pay specified closing costs, subject to the seller’s agreement and VA requirements. The structure should be coordinated with the lender and real estate professionals before the contract is finalized.
Lender credits may be useful when preserving cash is a priority. However, the higher rate commonly associated with those credits can cost more over an extended ownership period.
Property taxes, insurance premiums, prepaid interest, and escrow deposits can materially increase the cash required at closing. These amounts should be included in the home-buying budget even when the loan does not require a down payment.
VA-backed loans can provide valuable home-financing benefits, but they do not eliminate every upfront expense. Borrowers should understand the VA funding fee, identify any available exemption, compare Loan Estimates, and evaluate seller or lender credits based on both immediate savings and long-term cost.
The lender and settlement professional should provide transaction-specific figures before closing. Questions about eligibility or VA program requirements should be directed to a VA-approved lender or the Department of Veterans Affairs.
CoreVest does not offer VA loans or financing for owner-occupied homes. CoreVest provides business-purpose financing for eligible non-owner-occupied residential investment properties.
This article is provided for informational purposes only and does not constitute legal, tax, financial, or lending advice. VA eligibility, fees, exemptions, occupancy requirements, and closing costs vary by borrower, lender, property, and transaction. Borrowers should consult a VA-approved lender and review current Department of Veterans Affairs guidance. CoreVest does not offer VA loans. All CoreVest loans are for business purposes only and are subject to underwriting, credit approval, eligibility requirements, program availability, and applicable terms and conditions.
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