Closing Costs
There is a lot to consider when closing a real estate deal. On the one hand, there is the price of the home to consider, and, on the other hand, the deal’s cost, more often referred to as closing costs. Many veterans ask, “Will my VA loan cover closing costs?”. This is a great question. While a VA loan does not technically cover closing costs, it is possible to structure a VA mortgage to achieve low closing costs.
For a more specific estimate of closing costs in Colorado, obtain a Good Faith Estimate – or as of October 3rd, 2014, a “Loan Estimate” – from your lender for any specific property.
For purchasing home loans, payment in liquid assets is required on all closing costs. You can receive Gift Funds to help with the closing costs. You can also receive a lender credit to cover most or all of your closing costs.
For refinancing loans, all closing costs may be included in the loan as long as the total loan does not exceed the reasonable value of the property or Appraised value. Interest rate reduction loans (IRL) may include closing costs, including a maximum of two discount points.
Closing costs to include the following:
- VA appraisal (not always required on VA IRL) – A statement of the property value. It determines the maximum loan amount to be obtained without a down payment.
- Credit reports – Generally range from $35 to $65.
- Mortgage lenders charge – A loan processing fee or Admin fee at closing to cover administrative costs for processing your loan.
- Title search – Determines from the public record that the person selling the property has a right to sell the property in question.
- Title insurance – A policy issued by a title company after a title search is completed and they have verified there are no outstanding liens against the property.
- Recording fees – Charged for the recording of your deed on county records.
- Transfer taxes – In Colorado, this is 1% of your loan amount for purchases – there is no transfer tax on refinances. This is the tax paid when the title passes from seller to buyer.
- Survey charges – Not usually required in Colorado – the title insurance company or lender may require a survey of the property.
- Hazard insurance – For new homeowners insurance that covers possible damages to your home.
- VA Funding Fee – A fee sometimes charged by the VA to offset the costs of the loan Guaranty Program.
| Loan Category | Active Duty and Veterans | Reservists and National Guard |
|---|---|---|
| Loans for purchase or construction with downpayments of less than 5 percent, refinancing, and home improvement | 2.15 percent | 2.40 percent |
| Loans for purchase or construction with downpayments of at least 5 percent but less than 10 percent | 1.50 percent | 1.75 percent |
| Loans for purchase or construction with downpayments of 10 percent or more | 1.25 percent | 1.50 percent |
| Loans for manufactured homes | 1 percent | 1 percent |
| Interest rate reduction refinancing loans | .50 percent | .50 percent |
| Assumption of a VA- guaranteed loan | .50 percent | .50 percent |
| Second or subsequent use of entitlement with no downpayment | 3.3 percent | 3.3 percent |
This fee is established by VA to help offset the cost of the Loan Guaranty program. The fee charged varies depending on the amount and type of loan being financed. This is the only fee that may be added to the loan amount (financed) or paid in cash at closing. If you receive VA compensation or have been rated eligible to receive VA compensation you may be exempt from paying this fee. Your lender can verify this by submitting a Verification of VA Benefits form to VA for verification. You may also provide your lender with a copy of your VA disability compensation letter, if it is dated within the past twelve months.
All Veterans, except those who are specified by law as exempt, are charged a VA funding fee (See chart above). Currently, exemptions from the funding fee are provided for:
- Veterans and Servicemembers receiving VA disability compensation
- Those who are rated by VA as eligible to receive compensation as a result of pre-discharge disability examination and rating
- Those who would be in receipt of compensation, but who were recalled to active duty or reenlisted and are receiving active-duty pay in lieu of compensation
- Unmarried surviving spouses in receipt of Dependency and Indemnity Compensation.
The VA funding fee and up to $6,000 of energy-efficient improvements can be included in VA loans. However, no other fees, charges, or discount points may be included in the loan amount for regular purchase or construction loans. For refinancing loans, most closing costs may be included in the loan amount.
