Whether you're buying a house or refinancing, getting a VA loan is generally the best possible financial solution. Unfortunately, there are still lenders charging an outrageous amount of fees. In the case of buying a house, you know this comes directly out of your pocket. If you're refinancing of course, this is equity you lose the minute your loan funds. In either case, you're interested in getting VA closing cost assistance. Below I'll go over the 3 ways you can keep from paying, or significantly reduce the closing costs on your VA loan.
Types of VA Closing Costs
Before you move forward with getting a VA loan, it's important to know what is what regarding the types of closing costs you'll encounter. There are 2 categories of closing costs involved in every VA loan: Loan costs and "Other" costs. Here is a brief explanation of each.
Loan costs are separated into 3 separate categories: Lender Costs, Services you cannot shop for and Services you can shop for.
VA makes things very simple for you with regards to lender fees. Lenders are required to only charge up to 1% origination fee and within reason and limits, discount points. The discount point(s) are directly related to the interest rate. You can eliminate the point(s) by choosing to take a higher rate. The origination fee however is the lender's cost to do the loan. This too can be eliminated from costs incurred by you. I'll discuss further how you can do this.
Services you Cannot Shop for
This category is generally a very short list. It includes, but not always limited to the VA appraisal, Flood Determination Fee or "Flood Certificate" and Credit report.
Services you Can Shop for
This too is a short list. It includes Survey fee (if necessary), Pest inspection (charged to you only on refinances) and Title fees.
This is where things can get a little complicated. For the most part, this category is not actual fees but it's still considered "closing costs" as the costs are incurred as a result of the transaction. They are made up partly of items you pay going forward, such as home owner's insurance and property tax escrow. It also includes prepaid interest from date of loan funding to end of the month. Additionally, if you're purchasing a home, this is where you would find the optional "Owner's title insurance" and the year of home owner's insurance that is due upon closing.
Fees you would find in this section can include, Government recording fees, State Transfer taxes and even the VA Funding fee.
3 Types of VA Closing Cost Assistance
Of course there may be programs in each state that assist veterans with closing costs. If you're looking for that type of information here, I recommend visiting your state VA benefits website. I will however, go over the 3 ways you can get your VA closing costs reduced or completely paid for.
Lender Paid Closing Cost Assistance
This is the most common way to get your closing costs paid. Remember when I spoke about discount points? You can reduce or eliminate the points by taking a higher rate. The increase in rate you choose can actually yield what's called "Lender Credits", whereas the lender will actually give you money to be used towards closing costs. Depending on the loan size, the amount they give you can be pretty significant. It can be very easy for the lender to do this, especially if you find a VA lender that charges no fees.
Seller Paid Assistance
Whereas lender paid assistance can be used on both purchase transactions and refinances, seller paid assistance, of course, can only be used during purchase transactions. This form of assistance is exactly what it states. The seller gives the buyer money to be used towards the buyer's closing costs.
Realtor Paid Assistance
This again, is only used during purchase transactions. It's not often a realtor will give up any portion of their commission to assist but it is possible and a solution that shouldn't be completely overlooked.
As you can see, it's very easy to get assistance with your VA closing costs. It is just a matter of knowing who to ask and how to do it. Finding a VA specialized lender that charges zero fees makes things much easier.