Buying a home with a VA loan is one of the most valuable benefits available to Veterans, active-duty service members, and eligible surviving spouses. These government-backed loans are designed to make homeownership more accessible and affordable for those who have served our country. With advantages like no required down payment and no monthly mortgage insurance, VA loans make homeownership more affordable for many buyers.
However, it is important to understand that some out-of-pocket expenses still apply. One of the most significant of these is VA loan closing costs. These are the fees and charges due at closing, the final step before the home officially becomes yours.
VA closing costs cover a wide range of necessary services that help finalize the transaction. These may include lender fees, title work, appraisal fees, insurance premiums, taxes, and more. These fees are common with all home loans, but VA loans include special protections that limit costs for Veterans.
By understanding what these costs entail and how they can be managed or reduced, you can better prepare for a successful and budget-conscious home purchase.
How Much Are VA Loan Closing Costs?
VA loan closing costs typically range from 3%–5% of the loan amount.
VA rules prevent lenders from charging certain fees to Veterans, which helps keep costs lower.
You can reduce or even eliminate VA loan closing costs with seller concessions, lender credits, gift funds, or down payment assistance programs.
The VA Funding Fee is a one-time cost that replaces mortgage insurance and helps sustain the VA loan program.
Types of VA Loan Closing Costs
Like any mortgage, VA loans involve a variety of closing costs that can add up quickly if you’re not prepared. The good news is that VA borrowers have access to cost-saving advantages that can make homeownership more achievable.
As a heads-up, VA loan closing costs can vary based on where you live, the type of property you’re buying, and even which lender you choose.
Non-Allowable VA Loan Fees
One of the biggest advantages of the VA loan program is protection against certain fees that lenders are not allowed to charge. The Department of Veterans Affairs has strict guidelines in place to ensure that Veterans are not overburdened by fees during the homebuying process. As a result, there are specific charges that lenders are not allowed to pass on to the borrower. These are referred to as non-allowable fees.
Examples of non-allowable fees include:
Attorney fees that benefit the lender
Real estate brokerage fees not tied directly to the buyer’s representation
Prepayment penalties
Administrative or processing charges that are considered redundant or already covered by other allowable fees
For example, if a lender charges a document preparation fee or an extra escrow fee that counts as non-allowable, the Veteran does not have to pay it. These fees must still be covered, but they cannot be charged to the Veteran. Instead, the lender may absorb the cost or adjust the transaction so that the seller agrees to cover them through seller concessions.
This protection can result in significant savings. Depending on the transaction and location, non-allowable fees could add up to several hundred dollars. Avoiding these extra expenses helps reduce the overall amount you need at closing, making it easier to keep more cash on hand for things like moving costs, new furniture, or emergency savings once you are settled into your new home.
VA Loan Lender Fees
Lender fees are charges that cover the services your mortgage lender provides to process and approve your VA loan. These fees support the behind-the-scenes work involved in getting your loan from application to final approval. This can include tasks like verifying your credit, underwriting your loan, preparing legal documents, and coordinating with other parties involved in the transaction.
To protect Veterans from excessive costs, the Department of Veterans Affairs limits what lenders can charge. Lenders may either charge a flat origination fee of up to 1% of the total loan amount or provide an itemized list of specific fees. They are not allowed to do both.
Neighborly Advice
Many lenders (including Neighbors Bank) often choose to charge the 1% origination fee. This flat fee helps cover typical lender expenses like the credit report, underwriting, and application costs. In many cases, it saves the Veteran money compared to itemizing these charges.
For example, on a $250,000 loan, the maximum flat origination fee would be $2,500. If the lender chooses to itemize instead, they may list separate charges for things like the credit report, underwriting, or the application. Each of these fees must be reasonable and can’t overlap with services already covered elsewhere.
| Fee | Description | Estimated Cost |
|---|---|---|
| Origination Fee | Covers administrative costs of processing the loan | Up to 1% of loan amount |
| Underwriting Fee | Fee for evaluating risk and loan eligibility | $400–$700 |
| Credit Report Fee | Fee for pulling your credit report | $30–$50 |
| Application Fee | General processing fee for the application | $300–$500 |
Knowing how your lender structures these fees can help you better understand your loan estimate and make more informed comparisons between lenders. If anything seems unclear or unusually high, it is a good idea to ask questions early and ensure you are working with a lender who respects VA guidelines and your financial interests.
Third-Party Fees
Third-party fees are costs paid to outside companies that provide essential services during the homebuying process. These companies are not part of your mortgage lender’s organization, but their services are necessary to complete your loan and legally transfer the property into your name.
Title insurance protects both you and the lender from future claims or disputes related to the ownership of the home. Title insurance typically costs $300–$1,500, depending on the home’s value and location.
A title search fee is also commonly required. This service verifies that there are no outstanding liens or ownership conflicts that could interfere with your purchase. Ensuring that the title is clean and transferable is a critical step in closing on a home.
You may also be charged recording fees by your city or county government. These fees cover the official filing of your property deed, which makes your ownership legal and public record. You may also pay a notary fee for document signing and a flood certification to check if the home is in a flood zone.
All of these third-party services contribute to the overall security and legality of your transaction. Depending on the home and location, combined third-party fees usually range from $300 to over $1,000. Reviewing your loan estimate with your lender can help you understand which of these apply to your situation and how much they are likely to cost.
Property Related Expenses
In addition to processing and administrative costs, there are expenses tied directly to the home you’re buying. These are considered property-related closing costs, and they often vary by region and the home itself.
A required VA appraisal confirms both the property’s value and that it meets the VA’s minimum standards. The cost usually ranges from $425 to $800, though it can be higher in some states, and is due whether or not the home passes inspection.
You may also encounter pest inspection fees, especially if you live in states where termites and wood-destroying insects are common. Sometimes the seller covers this fee but, if they don’t, it could run you around $50 to $150.
Other property-related expenses include homeowners insurance premiums, which are typically paid up front for the first year. This can range anywhere from $500 to $1,500 annually. At closing, you may also prepay some property taxes and, if applicable, HOA initiation fees.
It might sound like a lot, but your loan officer will help break these down and factor them into your overall VA closing costs estimate.
The VA Funding Fee
One of the most important costs in a VA loan is the VA Funding Fee. This is a one-time fee that helps fund the VA loan program and allows it to continue supporting future generations of Veterans.
Because VA loans don’t require monthly mortgage insurance, the funding fee is a cost-effective way to keep the program sustainable without passing recurring costs to the borrower. The amount you pay depends on three factors:
Your down payment (if any)
Whether you’ve used a VA loan before
Whether you're exempt (like Veterans with service-connected disabilities)
If you're a first-time VA loan user putting 0% down on a $300,000 home, your funding fee would be 2.15%, or $6,450. You have the option to finance the fee into your loan instead of paying it upfront, so your loan amount would become $306,450.
If you’re putting 5% down or more, your funding fee will be lower. Veterans exempt due to service-connected disability compensation pay no funding fee.
How to Pay for VA Loan Closing Costs
If closing costs feel overwhelming, there are several ways to reduce or cover these expenses:
Negotiate seller concessions: With a VA loan, sellers can contribute up to 4% of the loan amount toward your closing costs and prepaid expenses. This money can be used for your VA Funding Fee, property taxes, insurance premiums, or even to pay off collections that help you qualify.
Consider lender premium pricing credits: In this option, the lender covers some or all of your closing costs in exchange for a slightly higher interest rate. It’s a trade-off since you’d be paying more in interest costs down the line, but for some borrowers, it’s worth it to get into a home sooner.
Use gift funds: Family members or close friends can provide money to help with closing costs. These funds don’t have to be repaid, but you’ll need a signed gift letter and documentation showing where the money came from.
Explore local and state assistance programs: Many programs offer grants or forgivable loans that can help cover closing costs. Often, these can also be applied to down payments. Check with your lender to see what programs are available in your area.
FAQs About VA Loan Closing Costs
Who pays the closing costs of a VA loan?
VA loans have closing costs, but there is flexibility in who pays them. Typically, the Veteran borrower is responsible, but there are plenty of ways to offset those costs. Seller concessions, lender credits, gift funds, and assistance programs can all help reduce what Veterans owe at closing.
VA rules also ban certain fees, which helps keep closing costs manageable.
Can a seller pay closing costs on a VA loan?
Yes, a seller can pay up to 4% of the loan amount toward VA closing costs and other prepaids. This is an effective way to reduce your upfront expenses, especially if you negotiate wisely.
Keep in mind that the seller’s willingness to help may depend on the competitiveness of the market. In a buyer’s market, sellers are more likely to contribute. In a seller’s market, you may need to rely on lender credits or other options.
Can VA closing costs be rolled into the loan?
Most closing cost VA loans must be paid at closing, but there is one exception. The VA Funding Fee can be rolled into your loan amount.
This helps reduce your upfront cost, although it increases your total loan balance and monthly payment slightly. Other costs like third-party fees, lender fees, and prepaid taxes generally need to be paid at closing.
Are closing costs high with VA loans?
No, VA closing costs are generally lower than those for other types of loans. This is because VA loans do not require private mortgage insurance and include restrictions on certain fees that lenders can charge Veterans.
Combined with seller concessions and assistance programs, these cost-saving features make VA closing costs more affordable compared to other loan types.
Still have questions? Reach out to a Neighbors Bank loan expert today.
Whether you are buying your first home or your fifth, we are here to help you understand your options, simplify the process, and make the most of your VA loan benefits.
With over 11 years in the mortgage industry, Matt Roy has spent the last 7 years as an underwriter. He’s passionate about understanding the “why” behind lending decisions and helping homebuyers succeed.
