Veterans buying a new home are faced with closing costs, but there are ways to receive discounts or even have the costs coverered entirely when qualifying for a loan from the Department of Veterans Affairs (VA).
VA borrowers already have the advantage of no down payment required on a home. However, closing costs can take a bite out of their purchase power. The costs can range from 1 to 5 percent of the loan amount, depending on the home purchase price, MilitaryVALoan.com reported.
Vets using a VA mortgage may pay for items such as appraisal, title insurance, recording, and origination fees. Charges veterans are not allowed to pay include costs for processing, documents, underwriting, and escrow fees.
Some or all of these fees could be handled several ways, which is why vets should tell real estate agents they have a VA loan when purchasing a home.
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These five closing cost discounts are available for veterans when buying a home:
1. Seller concessions — The real estate agent may request that the seller pay for most or all of the loan-related closing costs, according to Military.com. The seller is allowed to pay up to 4 percent of the sales price. The buyer can negotiate the closing costs as part of the sales contract, offering to pay a certain price for the home if the seller agrees to pay for the closing costs.
2. Non-loan-related costs — The VA also allows seller concessions to cover anything of value during the closing. These concessions may include insurance costs, prepaid taxes, and credits for home items left behind by the seller, Veterans United notes.
3. Lender credits — Lenders can offer VA borrowers a credit, which offsets some or all closing costs. For example, the lender provides a lower interest rate when the buyer pays a point, or 1 percent, of the loan amount. Or the lender can increase the rate by one-quarter of 1 percent on a $200,000 loan, so the borrower receives a $2,000 credit toward closing fees.
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4. Real estate agent credit — Buyer and seller agents each receive commissions from the seller of the home. The agent representing the buyer may contribute toward closing costs through credits, but this is allowed in certain states.
5. Covering non-allowed fees — An origination fee is an allowed charge for borrowers with a VA loan, representing 1 percent of the loan amount. Lenders can charge this fee and waive costs for non-allowable fees such as processing, underwriting, and attorney costs.
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