A zero down VA loan does not mean zero out of pocket when it comes time to close! There is a lot of misunderstanding when it comes to a VA loan, who pays what, and what costs if any are there.
First, I’ll tell you that a VA loan is one of the best loans out there for those who are eligible! And, we are honoring our Veterans and active duty service men and women who have selflessly taken care of us by helping them get into a home using this option.
You are correct in your understanding that VA loans do not require a down payment as long as the Borrower has their full eligibility to use, however, a Veteran/active duty service member has the same closing costs that anyone else does unless they negotiate to have the Seller pay their closing costs on their behalf.
VA loans in addition to the standard closing costs consisting of appraisal, title, escrow, recording and any lender fees and prepaids, also have a funding fee paid to VA. This fee is financed into the loan unless the Borrower wishes to pay this fee out of pocket. In addition, veterans who have a VA disability rating of 10% or higher, so are receiving VA disability income, are not assessed the VA funding fee regardless of the number of times they use their eligibility.
Another misunderstanding is that it costs the Seller more when their Buyer is using a VA loan to finance the home. Yes, the Northwest MLS Purchase & Sales Agreement states the Seller pays the full escrow fee and $300 of the non-allowables, but this is not mandatory and you can indicate the Seller won’t pay any of those costs and it’s still fine for the Buyer to purchase using VA financing.
VA has deemed certain fees that are actual costs to doing a mortgage as non-allowable, however, as long as those non-allowable fees do not exceed 1% of the loan amount, the Veteran can and does pay those.
So a quick synopses, the seller can pay the closing costs but you have to ask them to do so, this is not automatic, the VA funding fee is financed and does not have to be paid out of pocket and it doesn’t have to cost the seller more to sell to someone using VA financing as long as you correctly complete the Purchase & Sales Agreement.
Support our Veterans and let’s do some VA loans!
Questions? Give me a call, 360-459-1200!