The Department of Veteran Affairs created the VA loan program to help veterans and their families buy homes. One of the advantages for the Veteran is that the VA limits the amount of fees the lender and title company is allowed to charge the buyer. Some of the non-allowable costs are considered “junk fees,” while others represent actual costs of business for the lender or title company. If you are selling your home to a veteran through a VA loan, you need to be aware of these fees because the lender and title company will usually pass them on to you.
The fees which the VA prohibits from being charged to the veteran buyer are called “non-allowable fees.” Though these will vary between lenders and title companies, there are two primary fees you as the seller should be aware of. Most lenders charge a fee called a processing or underwriting fee. This is different from the origination fee. It is typically between $300 and $900. The is a non-allowable cost. Some lenders waive it on VA loans, but many will charge it to the seller. The other fee is from the title company and will be called an escrow, settlement or closing fee. Not to be confused with the title insurance cost (which the buyer will pay) this escrow fee is also a non-allowable cost. It differs by state and purchase price, with a range anywhere from $250 to $2,000. Check with a title company in your state to learn what is typical.
Negotiate With Your Buyer
If you know that you are selling your home to a veteran, keep these costs in mind during negotiations. Your buyer should come to you with a pre-approval letter from a lender to verify their qualification. The letter will specify if they are obtaining a VA loan. Do not let this discourage you from accepting their offer. Not only is it illegal to discriminate against a veteran, the VA also offers a very good loan program. But it is within your rights to negotiate based on the added cost you know you will incur.
Ask your realtor to talk with the buyer’s loan officer directly. Obtain a list of exactly which non-allowable fees will be charged. You can also ask for a copy of the loan estimate. Though this list of loan charges is only required to be provided to the buyer, it shows all fees the lender will be charging, even to the seller. If fees are not on the initial loan estimate they cannot be added later.
Grants and Subsidies for Veterans
Besides the VA loan program, there are other benefits to buying a home as a veteran. Grants and subsidies from local communities and housing initiatives may be available to help cover some of the loan costs for both buyers and sellers. Though the onus is typically on a buyer to find out if they can get any assistance in buying a home, if you are selling to a veteran, it is to your benefit to know about any programs in your area. These assistance grants can be used to pay VA non-allowable costs in addition to the buyer’s other costs of obtaining a loan. Talk to your community housing authority before listing your home to find out what might be available in your area.
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