When it comes to VA home loans, the closing process tends to generate more questions and confusion than any other part of the process. And that’s understandable since there are so many moving pieces involved in a typical loan closing.
Today, we will address one of the most common questions related to VA loan closing. A lot of borrowers want to know how and when they will find out what their closing costs are, when using a VA loan.
So let’s start with the short version before digging into the details:
You can get an estimate of your mortgage-related fees just by speaking to a lender. But they won’t be able to provide you with a detailed estimate until you have found a home.
Once you’ve identified the home you want to buy, the lender can provide an official “Loan Estimate” document detailing your VA loan closing costs. This will be followed by a finalized “Closing Disclosure” a few days before you are scheduled to close.
How to Determine Your Closing Costs on a VA Loan
If you are eligible for a VA-guaranteed mortgage loan, you’ll have the opportunity to buy a house with no down payment. This benefit eliminates one of the biggest hurdles to homeownership—the upfront expense.
But you will likely encounter closing costs along the way, and these can range from 2% to 5% of the base loan amount in most cases.
Which begs the question: when will you find out what your closing costs will be on a VA loan?
This is a straightforward question with a somewhat complex answer that involves multiple steps. To simplify things, let’s break it down into three distinct stages of the loan process:
1. You can get an informal estimate from the lender up front.
Mortgage lenders that offer VA loans can provide you with an estimate of closing costs before you even submit an application. Lenders make loans so often that they have a pretty good idea how much a borrower might pay in closing costs.
But this will only be a rough estimate. If you speak to a lender before you’ve actually found a house to purchase, they won’t know the exact loan amount, property value, and other important information.
So, at this stage, they won’t be able to offer a very precise estimate of your VA loan closing costs. But they can give you a ballpark figure that might be helpful for planning purposes.
2. You’ll receive a detailed Loan Estimate once you’ve found a home.
You’ll get a clearer insight into your VA loan closing costs after you have found a home you want to purchase. At that point, your mortgage lender will be able to provide you with an official “Loan Estimate” document.
A Loan Estimate is a three-page form providing important information about the mortgage loan you’re considering. The Consumer Financial Protection Bureau (CFPB) created this document to help borrowers compare loan costs, by standardizing the way that information is presented.
This is your first glimpse at your actual VA loan closing costs. But it’s not yet finalized. In some cases, the amount a borrower actually pays at closing will be slightly different from the figure listed in their Loan Estimate.
To prepare this document, your mortgage lender will need (A) your name, income and Social Security Number, (B) the address and value of the property you’re considering, and (B) the loan amount you’re seeking.
This document provides other important information as well, including the loan amount, interest rate, and monthly payments. You can find an example online by searching for “sample Loan Estimate PDF.”
3. You’ll get a final Closing Disclosure shortly before closing.
You’ll know more about your VA loan closing costs shortly before the day you are scheduled to close. That’s when you receive another official document known as the Closing Disclosure.
The Closing Disclosure is basically a finalized version of the initial Loan Estimate that provides additional information. This five-page document contains the finalized terms and costs of the mortgage loan, including the actual interest rate, monthly payments, and closing costs.
The Closing Disclosure will also show any adjustments to the terms that occurred since the Loan Estimate was provided. This allows you to review the final costs and terms, to make sure that they align with what was initially presented to you.
In a typical home-buying scenario, borrowers using VA loans will receive their Closing Disclosure a few days before their scheduled closing date. This gives you time to prepare your method of payment, which usually takes the form of a cashier’s check or wire transfer.
The Closing Disclosure also contains a financial summary of the real estate transaction, along with contact information for the lender, real estate agent, and other parties involved. So be sure to keep it in a secure location, ideally in a safe deposit box.
Asking Questions at Seeking Clarification
We’ve really only scratched the surface here, when it comes to the documents and disclosures associated with a VA loan. Throughout the course of your home buying journey, you will have to review and sign a wide range of documents.
Be sure to ask plenty of questions so that you understand what these documents contain and how they relate to your VA loan. You should never feel like you’re pestering someone by asking a lot of questions.
Reputable mortgage lenders and escrow companies should take all the time they need to answer your questions and help you understand the process.