6 Ways to Prepare for Closing When Using a VA Loan

For some home buyers who use VA loans, the closing process can seem like a mystery at first glance. This is especially true for first-time buyers who have never experienced the closing process.    

However, while the VA loan closing process involves a lot of necessary paperwork, it’s not that complicated. Once you finish reading this article, any “mystery” surrounding this process will vanish.    

Here are six things you can do to navigate the closing process when using a VA-guaranteed mortgage loan.

1. Understand the basics of the VA loan closing process 

In this context, “closing” refers to the final step in the home-buying process. This is where homeownership officially transfers from the seller to the buyer. It’s like the finish line of a marathon of your VA loan application process you’ve been running since you first got pre-approved for a loan.    

During closing, you will sign all the finalized paperwork, pay for your closing costs VA loan (and possibly a down payment), and receive the keys to your new home. And some of this can be done digitally.    

The VA loan program allows buyers to finance 100% of the purchase price, eliminating the need for a down payment. However, some borrowers put some money down upfront to reduce the size of their monthly payments.    

Closing costs are a different story. Nearly all home buyers who use a VA loan to purchase a house encounter closing costs, which are the different fees and charges that can accumulate during the mortgage and home-buying process.   

VA loan closing costs can vary due to several factors but typically range from 2% to 5% of the purchase price. For a median-priced ($350,000) home in 2024, these costs might range from $7,000 – $17,500. A more expensive home could bring even higher fees. 

To navigate the VA loan process successfully, it’s crucial to understand the closing process and the VA loan approval process. This is because it includes meeting the eligibility requirements and undergoing the necessary steps to secure approval for your VA loan application. 

2. Start saving money for your various closing costs 

As you’ve just seen, the closing costs for a VA-guaranteed home loan can easily exceed $10,000 for an average-priced home. Because of this, you want to start saving money sooner rather than later. (Hint: today is a great time to start.)    

Here are some tips to help you save up for the closing costs on your VA loan:   

• Set a Goal: Figure out how much you need to save and set a timeline. For starters, you can aim for 2% – 5% of the purchase price.  
• Automate It: Schedule automatic transfers from your paycheck to a dedicated savings account.  
• Cut Expenses: Track your spending and identify areas where you can save, like eating out less or reducing your cable package. Every penny counts!  
• Challenge Yourself: Set savings milestones and reward yourself for reaching them. 

Consider using a VA loan closing costs calculator to accurately estimate the total closing expenses and adjust your savings goals accordingly.    

Additionally, it’s worth noting that the closing costs of a VA loan can sometimes be rolled into the loan amount, allowing borrowers to finance these costs over the life of the loan. This option can benefit those who may have difficulty covering closing costs upfront but are comfortable spreading out the expense over time.    

By incorporating the option of VA loan closing costs rolled into loan, borrowers can further tailor their approach to closing preparation and ensure a smoother transition to homeownership. 

3. Consider using gift money from an approved source 

Saving money can help you prepare for the VA loan closing process. But sometimes, this is easier said than done. If you’re already on a tight budget, you might find putting extra money aside each month hard.    

In that case, you’ll be happy to know that family members and other approved donors can help you cover the closing costs associated with a VA loan.    

The Department of Veterans Affairs allows borrowers to use gift money from family members, close friends, and even employers in some cases. This kind of financial help can significantly reduce your upfront out-of-pocket expense, clearing a path to closing. 

Furthermore, it is crucial to adhere to particular restrictions provided by the VA when accepting gift money for closing fees. This entails confirming that the funds are non-repayable by presenting a gift letter as proof of the donation. Usually, the gift letter states that the funds are a gift rather than a loan, the amount of the gift, and the connection between the donor and the borrower.  

Additionally, it is imperative for borrowers to guarantee that the gift funds are transferred into their bank account ahead of the closing date. This gives the money enough time to clear and allow the lender to verify them. To effectively use gift funds for VA loan closing fees, transparency and appropriate paperwork are essential.  

When it comes to first-time homeowners or those with limited finances, using gift money can be a very helpful source of financial support. To prevent any issues during the closing process, it is crucial to comprehend and abide by the VA’s regulations. Through prudent use of gift funds, borrowers can lessen their financial burden and more easily reach their objective of becoming homeowners. 

4. Stay in touch with your loan officer throughout the process 

When you apply for a VA loan application, you will probably have a “point person” who guides you through the rest of the process. Depending on the company’s business model, this might be a mortgage broker or a loan officer.    

Mortgage professionals are proactive when it comes to communicating with their clients. But it never hurts to be proactive on your end, as well. 

In the weeks leading up to your VA loan closing date, staying in touch with your mortgage company’s point of contact to ensure they have everything they need is crucial. This includes the initial stage of VA loan pre-qualification, where your financial situation is assessed to determine the loan amount you may be eligible for.  

Additionally, before finalizing your VA loan, it is imperative to scrutinize all loan documents carefully to ensure accuracy. This involves a thorough examination of every aspect, including personal information, loan terms, and financial details. Any inaccuracies found within these documents could result in complications during the closing process or even impact the terms of your loan agreement.    

By conducting a meticulous review, you can identify and address any errors or discrepancies, thereby mitigating the risks associated with incorrect information. This proactive approach empowers you to protect your interests and ensure that the loan terms align precisely with your expectations and financial situation. Ultimately, double-checking loan documents serves as a crucial step in safeguarding a smooth and successful VA loan closing experience.    

When it comes to complex financial transactions such as home loans, communication becomes the glue that holds it all together. 

5. Make sure the escrow company has everything they need 

You’ll be working with other people as well, in addition to your broker or loan officer. For example, you will probably work with a title or escrow company that will finalize all of the paperwork needed for the closing process.    

These professionals tend to be very proactive when it comes to “chasing down” documents and paperwork. But you can facilitate the process by reaching out to your title or escrow company a week or two before you’re scheduled to close. You can also use this opportunity to ask any preliminary questions about the closing process, for instance, how long does a VA loan take to close or what are the requirements to close a VA loan. 

6. Ask questions before and during the VA loan closing process   

First-time homebuyers utilizing VA loans should never hesitate to ask questions throughout the loan closing process. Understandably, some may feel nervous or apprehensive about appearing inexperienced or burdensome with their inquiries.    

However, it’s crucial to recognize that this is your mortgage and home purchase, involving significant financial implications. Therefore, comprehending every aspect is paramount. Mortgage professionals anticipate and support thorough due diligence, expecting questions to arise from buyers seeking clarity and confidence in their decisions.    

Remember, clarifying doubts and seeking explanations about loan terms, procedures, and documentation is not only acceptable but strongly encouraged. By actively engaging with mortgage professionals, buyers empower themselves to make informed choices, ultimately ensuring a smoother and more successful home-buying experience. 

So, regardless of any initial hesitation, prioritize asking as many questions as necessary to navigate the VA loan closing process with confidence and understanding.