Question: Are funding fees on VA loans eligible for seller credits?
Loans guaranteed by the Department of Veterans Affairs are known as VA Loans (Who thought VA stood for Virginia? Be honest) and provide current and former servicemembers with an opportunity to purchase a home with as little as 0% down. In addition to the normal closing costs (title fees, transfer taxes, etc), a Funding Fee is charged at settlement, which is equal to anywhere from 1.5-3.3% of the loan amount. It’s a fee paid to the VA on every loan to offset the cost of loans that default. It’s the same concept as Mortgage Insurance, but much cheaper.
In a previous column, I explained how buyers can negotiate for seller credits to reduce or eliminate the out-of-pocket expense of closing costs at settlement. Fortunately, the Funding Fee falls into this category, along with the rest of the standard closing costs associated with a VA loan, and buyers are eligible to have all of these costs covered by the seller. In theory, if a buyer is able to negotiate 100% of closing costs paid by the seller and chooses a 0% down payment loan, a home can be purchased cash-free (until the first monthly payment).
If you’re unable to negotiate seller credits to cover the Funding Fee and are concerned about having the cash to pay for closing costs, you’re also allowed to roll the Funding Fee into your mortgage so that it becomes part of your monthly payment.
Some other facts about VA Loans you may not know:
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Financing is available up to $1,500,000 just not at 0% down
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You can use your VA entitlement more than once
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VA loans are assumable (can transfer from seller to buyer at seller’s rates) which is a big deal in today’s market because rates have been increasing steadily
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Adjustable Rate Mortgages (ARMs) are also available, not just fixed-rate
Arlington Veterans Affairs (VA) loans by the numbers:
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In 2015, 218 of 2,893 purchasers (7.5%) used a VA loan. By comparison, 2,038 used a Conventional loan (70%). I’m actually a little surprised by this; I would’ve thought a higher percentage of purchases in Arlington would use VA loans.
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The average sold price for homes purchased using VA loans was just over $581,000
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The type of housing purchased using VA loans was pretty evenly split between single family (detached), townhouse, and condo
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The maximum loan amount for Arlington (and the rest of the Northern VA counties) is $625,500, but there are ways to increase the loan amount by putting more money down.
I hope the veterans and active duty military residents of Arlington had a great Memorial Day Weekend. Thank you for your service!
