The Department of Veterans Affairs (VA) loan program offers eligible active-duty service members, veterans, National Guard and Army Reserve members, and surviving spouses the opportunity to purchase a home without requiring a down payment. However, even though a VA loan removes the need for a down payment, buyers still need to account for closing costs.

What Are VA Loan Closing Costs?

Closing costs are the fees associated with finalizing a mortgage and transferring ownership of a home. These costs cover various services provided by your lender and other parties, such as home appraisals, title searches, and document processing.

For VA loans, some unique fees apply, including the VA funding fee, which supports the VA loan program. Buyers typically pay these costs at the time of closing, either out-of-pocket or by rolling them into the loan amount.

How Much Are VA Loan Closing Costs?

The total amount of VA loan closing costs varies based on the lender, property, and loan terms. On average, VA loan closing costs range between 3% and 6% of the loan amount.

How Are VA Loan Closing Costs Different?

VA loan closing costs differ from conventional loan closing costs in several key ways:

1. Non-Allowable Fees

To protect borrowers, the VA limits the types of fees lenders can charge. These “non-allowable fees” include:

• Prepayment penalties
• Settlement charges
• Lender attorney fees

This means VA loan borrowers are exempt from certain expenses that conventional loan borrowers must pay.

2. Limited Origination Fee

While lenders typically charge an origination fee to process a mortgage, the VA caps this fee at 1% of the loan amount.

3. VA Funding Fee

The VA funding fee is a one-time charge paid to the Department of Veterans Affairs to maintain the VA loan program. The fee amount depends on factors such as:

• Whether you’re purchasing or refinancing
• The number of times you’ve used a VA loan
• The size of your down payment

Example: If you make a down payment of less than 5% on your first VA loan, the funding fee is 2.15% of the loan amount. A down payment of 10% or more reduces the funding fee to 1.25%.

VA Funding Fee Exemptions

Some borrowers may be exempt from paying the VA funding fee, including those who:

• Receive VA compensation for a service-related disability
• Are surviving spouses of veterans who died in service or from a service-related disability
• Are eligible for compensation due to a pre-discharge claim
• Are active-duty service members awarded the Purple Heart

If you believe you qualify for an exemption, your lender can verify this with the VA.

4. VA Appraisal Fee

VA loans require a specialized VA appraisal to assess the property’s value and ensure it meets the VA’s standards. This fee ranges from $525 to $1,550, depending on the home’s location and type.

Who Pays Closing Costs On A VA Loan?

Closing costs for a VA loan can be divided between the buyer, seller, and lender.

The Buyer

As the borrower, you are responsible for covering most closing costs, including:

• VA funding fee
• Loan origination fee
• VA appraisal fee
• Title insurance
• Credit report fees

You may negotiate for seller concessions, allowing the seller to pay a portion of these costs.

The Seller

The seller can contribute to the buyer’s closing costs, but their contribution is typically capped at 4% of the loan amount. This cap does not apply to all closing costs—expenses like loan discount points can exceed the 4% limit.

Sellers generally cover:

• Real estate agent commissions
• Brokerage fees
• VA-required termite and pest inspections (where applicable)

The Lender

The lender covers certain fees, such as attorney fees in some cases. They are also responsible for adhering to the VA’s guidelines on fee limitations.

Can You Roll Closing Costs Into A VA Loan?

Certain VA loan closing costs, including the VA funding fee, can be rolled into the loan. This reduces the upfront cash required at closing but increases the total loan amount and the interest you’ll pay over time.

Other closing costs, such as the appraisal fee and title insurance, typically cannot be rolled into the loan. However, seller concessions and lender credits can help offset these expenses.

Are VA Loan Closing Costs Tax-Deductible?

The VA funding fee may be tax-deductible if you paid it during the tax year. However, if you rolled the funding fee into your loan, it is generally not deductible. Consult a tax professional to understand your eligibility for deductions.

The Bottom Line

VA loans offer significant benefits for eligible service members, veterans, and their families, including the ability to purchase a home without a down payment. While closing costs are still required, VA loan borrowers enjoy protections such as capped fees and the ability to negotiate seller contributions. These unique advantages make VA loans one of the most valuable benefits of military service.