VA Loan Closing Costs: What Veterans Pay and What Sellers Can Cover

What Closing Costs Do Veterans Pay on a VA Loan?

While VA loans eliminate the down payment and PMI, they do carry closing costs. Here are the fees veterans are allowed to pay:

• VA funding fee — 2.15% for first-time use with $0 down (can be rolled into the loan)
• Loan origination fee — capped at 1% of the loan amount by the VA
• Appraisal fee — typically $400 to $600 in the Tampa Bay area
• Credit report fee — usually $30 to $60
• Title insurance — varies by purchase price; Florida uses a promulgated rate schedule
• Recording fees — county fees for recording the deed and mortgage
• Survey fee — if required, typically $200 to $400
• Prepaid items — property taxes, homeowners insurance, and per-diem interest from closing to the first payment
• Flood certification fee — typically $15 to $25

What Are Non-Allowable Fees on VA Loans?

The VA specifically prohibits veterans from paying certain fees. These "non-allowable" costs must be covered by the seller, the lender, or another party:

• Lender's attorney fees — the veteran cannot be charged for the lender's legal costs
• Real estate commissions — always paid by the seller (standard in all transactions)
• HUD/VA compliance inspection fees — if required
• Settlement or escrow fees above normal — fees that exceed reasonable and customary charges
• Notary fees in some cases — depends on state regulations

The non-allowable fee rule is one reason some sellers have historically been reluctant to accept VA offers — they worry about absorbing extra costs. However, in practice, many of these fees are small or already covered in normal transactions. Our VA loan myths page addresses this misconception in detail.

How Much Can Sellers Contribute to VA Closing Costs?

On a VA loan, sellers can contribute up to 4% of the purchase price in concessions. This 4% can cover:

• Buyer's closing costs (origination, title, recording, etc.)
• The VA funding fee
• Prepaid taxes and insurance
• Payoff of buyer's debts (credit cards, car loans, etc.)
• Discount points to buy down the interest rate

On a $350,000 home, 4% equals $14,000 in potential seller concessions. In markets where sellers are motivated, this can result in a veteran buying a home with virtually no cash out of pocket.

How Does the VA Funding Fee Work?

The VA funding fee is a one-time charge that goes directly to the VA to help sustain the loan guaranty program. It is not a lender fee — it funds the VA's ability to offer $0 down loans without requiring PMI.

The fee amount depends on three factors: whether this is your first or subsequent use of the VA benefit, your down payment amount, and whether you are active-duty, Reserve, or National Guard. For a first-time VA buyer putting $0 down, the fee is 2.15%. Putting 5% or more down reduces it to 1.5%, and 10% or more down reduces it further to 1.25%.

Funding fee exemptions: Veterans receiving VA disability compensation, Purple Heart recipients serving on active duty, and surviving spouses receiving Dependency and Indemnity Compensation (DIC) are exempt. Learn more about disability exemptions on our disabled veteran home buying page.

What Are Lender Credits and How Can They Reduce Costs?

Lender credits are another way to reduce your out-of-pocket closing costs. A lender may offer to cover a portion of your closing costs in exchange for a slightly higher interest rate. This trade-off can make sense if you want to minimize cash at closing and plan to refinance later.

For example, a lender might offer a 0.25% higher rate in exchange for $3,000 in lender credits toward your closing costs. Whether this is a good deal depends on how long you plan to keep the loan — the longer you keep it, the more that higher rate costs you over time. If you plan to refinance within a few years, lender credits can be a smart play.

What Is the Difference Between Closing Costs and Prepaids?

Closing costs are fees for services related to creating the loan — origination, appraisal, title work, recording. Prepaids are advance payments for recurring costs you would pay anyway — property taxes, homeowners insurance premiums, and HOA dues.

Both show up on your Closing Disclosure (the document you receive at least three business days before closing), but they serve different purposes. Closing costs are one-time charges; prepaids are just paying future bills early to fund your escrow account.

In Florida, property taxes are relatively high compared to some states, so the prepaid portion of your closing statement can be significant. Your lender will typically collect several months of property tax and insurance reserves at closing.

How Can Veterans Minimize Out-of-Pocket Closing Costs?

Here are proven strategies Tampa Bay veterans use to reduce what they bring to closing:

1. Negotiate seller concessions — ask for 2-4% seller concessions in your offer. In balanced or buyer-friendly markets, sellers routinely agree.
2. Request lender credits — trade a slightly higher rate for credits that offset closing costs.
3. Roll the funding fee — the VA funding fee can be added to your loan balance so you do not pay it out of pocket.
4. Shop multiple lenders — origination fees, rates, and lender credits vary. Getting three Loan Estimates lets you compare apples to apples.
5. Apply for disability exemption — if you have a pending VA disability claim, you may be exempt from the funding fee retroactively.
6. Close late in the month — per-diem interest charges are lower when you close near the end of the month, reducing your prepaid interest amount.

Barrett Henry is a Military Relocation Professional (MRP) and Broker Associate with REMAX Collective, serving veteran and military homebuyers across Tampa Bay. The son of a U.S. Air Force veteran, Barrett has guided Tampa Bay veterans through closing for 23+ years of real estate experience. His MRP designation means he understands exactly which fees apply to VA transactions and how to structure offers that minimize your out-of-pocket costs.