Who Pays Closing Costs on a VA Loan in Metro Atlanta

Which Closing Costs a Veteran Pays, and Who Else Can Cover Them

Closing costs on a VA loan follow a set of VA rules about who may pay what. VA limits the charges a veteran buyer can be asked to pay. The seller, the lender, or any other party may pay charges for the veteran, and VA caps what a lender can collect for its own services. With those rules in hand, a veteran buyer in metro Atlanta can plan for the cash needed at closing and write an offer with the right terms included.

The Veteran's Share of Closing Costs

The VA Lenders Handbook, the guide VA publishes for lenders, sets out what a veteran-borrower may pay. That includes reasonable and customary amounts for the itemized fees VA allows, a lender charge of up to 1% of the loan amount, and reasonable discount points. The itemized fees cover the VA appraisal, the credit report, recording fees, title examination and title insurance, and the homeowners insurance premium. A survey is included when one is required, along with the initial escrow deposit for property tax and insurance payments. When an outside company performs a service, the veteran pays that company's actual charge, with no handling markup added.

The lender's 1% charge stands in for the lender's other costs of making the loan. A lender cannot add separate origination charges on top of it. VA allows a local fee only when VA specifically authorizes it, so a charge that is customary in an area still needs that authorization to appear on a VA loan.

The VA funding fee is a one-time fee paid to VA to help cover the cost of running the home loan program. It is due at closing unless the veteran is exempt. Some veterans owe nothing, and the full list of funding fee exemptions is in its own post.

Discount points are optional fees paid at closing to lower the interest rate. A veteran can pay reasonable points, and a seller or lender can contribute as well. If you plan to finance, I can point you to a lender who can show you rate options for your situation.

Who Else Can Pay on the Veteran's Behalf

VA's limits apply to what the veteran pays. They do not limit what other parties pay for the veteran. A seller, a lender, or any other party may cover fees and charges, including discount points, on the veteran's behalf. VA does set one limit on seller help, called the seller concession limit. A seller concession is any extra benefit the seller gives the buyer that sellers do not normally provide. VA limits the combined value of these to 4% of the home's appraised worth, which VA calls its reasonable value. The Notice of Value is the VA document that reports that value, and the 4% is figured on that amount, which can differ from the contract price.

Whether a seller's payment counts toward that limit depends on what is being paid for. The Handbook treats a seller's payment of the buyer's closing costs as outside the seller concession category, so a seller who covers the buyer's allowable closing costs does not use up any of the 4%. VA also does not count a seller's payment for the services of the buyer's agent toward that limit.

Discount points follow their own rule. A seller can pay a normal number of them for the buyer, meaning what is typical in the market at the time, and none of that counts toward the 4%. Points beyond what is normal do count. If two points is typical and a seller pays five, the three extra points count toward the limit. A temporary buydown, where the seller pays to lower the buyer's rate for the first part of the loan, also counts. Other seller payments count too, such as paying the buyer's VA funding fee or paying off a buyer's debts. More detail on how the limit works is in the post on what the 4% seller concession limit covers.

For example, on a home with a reasonable value of $400,000, the 4% limit is $16,000. That amount is the room available for concessions such as a buydown or the funding fee. A seller's payment of allowable closing costs sits outside that total.

The Charges VA Keeps Off the Veteran's List

The Handbook lists items the lender must pay from its 1% charge instead of billing the veteran. They include loan closing or settlement fees, escrow fees, document preparation, notary fees, application and processing fees, interest rate lock fees, tax service fees, and attorney services other than title work. Fees VA does not expressly permit cannot be charged to the veteran. A veteran who sees an unfamiliar line on a lender's estimate can ask the lender which allowed fee it is.

If a loan never closes, the lender must refund the 1% charge if it was collected. Costs already incurred, such as the appraisal and the credit report, are not refunded. A veteran also cannot be charged twice for a service another party has already paid for.

The One Fee That Goes into the Loan

On a purchase, the only closing charge that can be added to the loan amount is the VA funding fee, which can also be paid in cash instead. Every other closing cost and any discount points are paid in cash or covered by another party. The VA's Buyer's Guide, the consumer guide VA publishes for veterans, notes that a veteran needs enough cash assets for the costs that fall to the borrower and are not financed. That makes the cash needed at closing worth settling before an offer is written.

Writing Closing Cost Help into an Offer

A seller contribution toward the buyer's closing costs is a term in the offer, negotiated alongside price and closing date. To the seller it is a fixed amount taken from proceeds, and the number to compare is what the sale still nets. The amount can be set to fit the buyer's estimated charges.

Getting the Numbers for Your Own Purchase

Every purchase has its own set of charges, shaped by the price, the loan, the property, and which charges other parties agree to cover. A lender can lay out the estimated charges for the home you have in mind. I am glad to go through them with you and map out the offer terms for a purchase in metro Atlanta.

Michelle Campbell | Campbell Group at Epique Realty | campbellgrouprealty.com