Can You Roll Closing Costs into a VA Loan?

For veterans and active-duty service members, VA (Veterans Affairs) home loans are an attractive option when looking to purchase a home. These loans offer numerous benefits, including competitive interest rates, no down payment requirement, and no private mortgage insurance (PMI). However, one question often arises is whether it’s possible to roll closing costs into a VA home loan. The short answer is no, you cannot roll your closing costs into a VA home loan. In this article, we’ll explain why this is the case and break down the typical closing costs associated with a VA home loan.

Why You Can’t Roll Closing Costs into a VA Home Loan

Unlike some other mortgage programs, such as FHA and conventional loans, VA home loans do not permit borrowers to roll their closing costs into the loan amount. This is a distinct feature of VA loans, and understanding the reasons behind it is essential.

• VA Loan Guidelines: VA home loans are backed by the U.S. Department of Veterans Affairs, and they have specific guidelines and regulations in place to protect both the borrower and the lender. One of these regulations states that the total loan amount cannot exceed the appraised value of the property. Rolling closing costs into the loan would increase the loan amount beyond the property’s value, which is against VA loan rules.
• Seller Concessions: VA loans allow for seller concessions, where the seller can contribute to the buyer’s closing costs. While this doesn’t roll the costs into the loan, it can help alleviate some of the financial burden associated with closing costs.

Understanding VA Home Loan Closing Costs

Now that we’ve clarified that closing costs cannot be rolled into a VA home loan, let’s explore what these closing costs typically include:

• VA Funding Fee: The VA funding fee is a one-time fee that helps offset the cost of administering the VA loan program. The funding fee amount varies depending on factors such as the type of military service, the down payment amount, and whether it’s your first or subsequent VA loan. Veterans who have received a disability rating of 10% or more are completely exempt from paying the VA funding fee.
• Appraisal Fee: To ensure the property’s value aligns with the loan amount, a VA-approved appraiser assesses the property. Borrowers are responsible for covering this fee.
• Credit Report Fee: Lenders will pull your credit report to evaluate your creditworthiness. This fee covers the cost of obtaining your credit report.
• Origination Fee: Lenders may charge an origination fee for processing your loan application. The VA places a cap on the origination fee, which cannot exceed 1% of the loan amount. Six Pillar Lending does not charge origination fees, unlike some of our more well-known competitors (Veterans United, USAA, and Navy Federal Credit Union all charge origination fees).
• Title Examination and Insurance: These fees are associated with researching the property’s title and ensuring it is clear of any liens or issues that could affect ownership.
• Recording Fees: These fees cover the cost of recording the property transfer and mortgage documents with the appropriate government authorities.
• Prepaid Taxes and Insurance: You may need to prepay property taxes and homeowner’s insurance for several months at closing, ensuring that these costs are covered when they become due.
• Home Inspection and Pest Inspection: While not required by the VA, it’s often recommended to have a home inspection done before purchasing a home. WDI (wood destroying insect) inspections are REQUIRED. The buyer usually pays for home inspections, and the seller typically pays for the pest inspection.

What Are Some Solutions to Get Closing Costs Covered?

Covering closing costs can be a challenge for some homebuyers, but there are several strategies and solutions you can explore to help alleviate this financial burden. Here are some options to consider:

1. Negotiate with the Seller:

   • Ask the seller to contribute: You can negotiate with the seller to provide a seller concession, where they contribute a percentage of the home’s purchase price toward your closing costs. VA loans allow for generous seller concessions (up to 4% of the purchase price), which can significantly reduce your out-of-pocket expenses.
   • Buy a home with built-in incentives: Look for homes where the seller is already offering to cover some or all of the closing costs as part of their listing. This can be a particularly attractive option for buyers on a tight budget.

2. Explore Lender Credits:

   • Some lenders may offer lender credits, which can help offset your closing costs. In exchange for a slightly higher interest rate, the lender can provide you with a credit to cover a portion of your closing costs. This can be a useful option if you prefer to conserve your cash for other purposes.

3. Use a Gift or Windfall:

   • If you receive a monetary gift from a family member or a windfall (e.g., inheritance, bonus), you can use these funds to cover your closing costs. Be sure to follow lender guidelines for documenting the source of the funds.

4. Seek Assistance from Employers:

   • Some employers offer relocation assistance or homeownership programs that can help cover closing costs for employees.
   • Active-duty military personnel may have access to specific homeownership benefits or financial assistance through their service branch.

VA Home Loan Closing Costs

In summary, you cannot roll your closing costs into a VA home loan. VA loan guidelines prohibit this practice to ensure that the loan amount doesn’t exceed the property’s appraised value. However, VA loans do offer several advantages, including no down payment and competitive interest rates, making them an excellent choice for eligible veterans and active-duty service members. When considering a VA home loan, it’s essential to understand the closing costs associated with it so that you can budget accordingly and make an informed decision when purchasing your home.

Six Pillar Lending, a Veteran-Owned Mortgage Brokerage, is not just another name in the lending industry. We’re veterans serving veterans. We understand the unique needs and challenges faced by our fellow service members. Our dedication is to help you navigate the VA home loan process, ensuring you receive lower rates and minimal fees. Why? Because we believe in giving back to those who’ve given so much for our country. Trust in our experience and commitment and let us make your home ownership dream a more affordable reality. Contact us when you’re ready to get started,