When you use a VA Loan, how much money will you need to fork over at the closing of your home? This is a very common question I hear when veterans reach out to me. What you’re looking for is an estimate on your “cash to close” for a VA Loan or VA Loan closing costs (not to be confused with CTC = clear to close).
One of the primary benefits of a VA Loan is having a 0% down payment towards the purchase, but this doesn’t necessarily mean you won’t have any out of pocket costs. Let’s take a quick review of costs and fees associated with a VA Loan purchase below and see how much money you’ll need to close on a VA Loan.
What is cash to close?
Cash to close is your out of pocket cost associated with the mortgage. This is the amount your lender will be monitoring and considering as part of your mortgage. To get a basic overview of your costs, take a quick look at our VA Loan Calculator and adjust based on if you’re refinancing or purchasing.
When using a VA Loan, you’re able to qualify for a 0% down payment, which will reduce your out of pocket costs tremendously. One of the first things you’ll need to do when preparing for your VA Loan is to make sure your Certificate of Eligibility is in order. Assuming it is, read on to learn about what to expect for cash to close with your VA Loan purchase.
How to calculate your cash to close.
Figuring out your estimate cash to close on a VA Loan is very easy with the right tools. Start by using our free VA Loan Calculator. When you use our VA Loan Calculator, you’ll see a number of options appear. Below, we’re reviewing a 30-year fixed VA Loan. In this scenario, the home buyer is using VA Loan for the purchase of a $200,000 home with 0% down and excellent credit.
Once you click the “Search Rates” button, you’ll be brought to the second image below that reviews your program options and interest rates.
Within this category, you can click the “Fees” tab to get an overview of what fees you’ll be looking at. Since this scenario is for a Marine veteran without any disability, there will be a VA funding fee. This would typically be included in the loan unless the veteran prefers otherwise. That means this is not set as an out of pocket cost.
This particular transaction is looking at approximately $4,660 in closing costs. As a general rule of thumb, I always advise home buyers to plan for the worst and hope for the best. So, let’s just round up to an even $5,000 in closing costs.
With the mortgage-related closing costs, this veteran will need to come up with about $5,000 to close on this TBD property. This is assuming they don’t receive any tax prorations (present in states such as Illinois where property taxes are paid in arrears) and don’t receive any seller or lender credits.
How to get out of paying closing costs on a VA Loan.
As you might have gathered, it’s pretty easy to get the $5,000 in closing costs reduced significantly, if not entirely. This was the case recently for one of our VA Loans with disability. Depending on your purchase price, you’ll be able to negotiate most of these costs as seller credit. If you’re still looking to keep your investment even lower and seller credits didn’t catch everything, you can consider having costs included in your mortgage (although this will raise your interest rate).
Finally - if you live in a state where your property taxes are paid in arrears (ex: Tax bill for 2018 is paid in 2019), then you may be able to have the seller give you a tax proration at closing as well. Depending on the time of year for your purchase and when taxes are paid, this amount could end up covering all of your closing costs.
Costs not related to your mortgage.
There is one significant cost associated with buying a home, but not related to the mortgage, that the vast majority of home buyers will see: inspection costs. We always recommended you get a home inspected so you know what you’re getting involved in so you can potentially re-negotiate your contract depending on the results. However, this is not related to your mortgage in any way. That means the inspection cost is not something your lender will likely discuss since they have no hand in it. You will need to plan to pay for a home inspection in addition to any closing costs expected.
Another common cost not related to your mortgage is putting down an earnest money check. However, you are not required to with a VA Loan. This is typically part of negotiations, but you are able to get this refunded since it isn’t a requirement of the loan. The seller usually will want to hold on to this until you’re definitely going to proceed with the purchase to make sure you don’t walk away from the deal.
VA Loans are one of the best mortgage deals on the market. But that doesn’t mean you won’t have to put some money into the home purchase. The most important thing you can do is prepare and properly research the potential costs. Make sure to run your numbers through our free VA Loan Calculator. It’s tied to live rates and you’ll be able to see all the fees in detail. No one wants surprises.
If you have questions about cash to close for your VA Loan, need help getting a pre-approval, or finding competent realtor to make sure you walk away with minimal investment, reach out to me today to see how we can help you. You’ve already done your service - let New Castle Home Loans repay some of that debt by helping you get the best rates for your home.