For veterans and active military, VA loans are a great way to achieve the dream of homeownership. More than 22 million service members have used these flexible, no down payment loans since 1944.
But when people hear “no down payment,” they often don’t realize they'll still need some cash on hand to finish the deal.
“Zero down does not mean zero to close,” points out Gwen Chubirko, broker in charge at Genesis Realty Co. in Kannapolis, NC.
The good news is that buyers don’t have to go in blindly: Your VA loan-savvy real estate agent will be your ally in helping you estimate the costs you will need throughout the process, no matter where you live.
“Our goal is to save veterans money and get them into a home that they’re happy with,” says Realtor® John Ulrich, broker associate with Illustrated Properties in Manalapan, FL.
While the amount you need to close will vary according to your location and situation, experts say you can usually expect to need about 3% of the purchase price on hand to close.
Want to break it down? Here are some home-buying costs that veterans and active military shouldn’t overlook.
1. Credit report
Buyers will often pay this fee, which runs, on average, about $30, to their lender when they first apply for a loan. Be aware that this fee is nonrefundable even if the loan doesn’t close.
2. Earnest money
The earnest money deposit is key to the home-buying process. It essentially allows you to put a "hold" on a house while you conduct the inspections and appraisal. Without earnest money, you could theoretically make offers on many homes, essentially taking them off the market until you decided which one you liked best. As the name suggests, it shows that you are earnest about moving forward on the purchase.
“The seller wants that buyer to have some money in the game when they take the house off the market,” Chubirko explains.
Depending on where you live, you can expect to put down anywhere from 1% to even 10% of the home’s purchase price as earnest money. (In some highly competitive markets, buyers are making even larger deposits in an effort to stand out.)
But don't worry! Whatever you put down for earnest money will go toward your down payment and closing costs as soon as the deal goes through. (If the deal falters, you could lose some or all of your deposit, depending on the reason why the agreement tanks.)
All VA loans require an appraisal to ensure the property is up to acceptable standards and meets the VA's Minimum Property Requirements. What does that mean? Well, an appraiser will calculate the square footage, confirm the property is worth the price you're offering, and that it's safe, structurally sound, and sanitary. Among other things, the appraiser will check for safe mechanical systems, acceptable roof life, and hazard-free basements and crawl space. VA buyers will often pay for the appraisal upfront, but they may be able to recoup the cost at closing.
4. Home inspection
While the appraisal is required, a home inspection is technically optional (except for a pest inspection, which is required in certain states and can cost roughly $50 to $150). But you never want to take a pass on the inspection, unless you're buying a tear-down (not with a VA loan!).
The home inspection is your all-too-crucial opportunity to uncover any problems with the house before you make it official. It's also your chance to point out repairs you can ask the seller to make on your behalf (and those repairs could cost much more than the inspection itself, which is going to run about $300 to $500.)
5. Recording fees
Recording fees must be paid out of pocket at the time of closing. This is the fee you pay the county to record your mortgage in the public record, and the cost varies from county to county.
6. Real estate transfer taxes
These costs vary by state—from none in Indiana, to a $2 flat fee in Arizona, to $2 per each $500 in value in New York. States, counties, and municipalities collect these taxes to transfer the title of the property from the previous owner to the new owner.
7. Title insurance
Title insurance protects you (and your lender) in the event there are title issues from previous owners of the home. The average cost of title insurance is around $1,000 per policy, but that amount varies widely from state to state and depends on the price of your home.
8. HOA fees
If you buy a home in an area where there is a required homeowners association, you will need to pay the application fee, which is variable depending on the local rules. Then there are your monthly dues. For a typical single-family home, HOA fees can cost homeowners around $200 to $300 per month, although they'll be lower or much higher depending on the size of your unit and the amenities.
9. Loan origination fees
An origination fee is one of several that will make up your closing costs. The VA allows lenders to charge up to 1% of the loan amount to cover origination, processing, and underwriting costs.
The bottom line? While VA loans are a great option for any veteran hoping to buy a house, being prepared before you apply will ensure no surprises throughout the process.