A reader writes:
“I have an offer on my house and the buyer is getting a VA loan. Because of this type of loan, my agent says I will have to pay some of the buyer’s closing costs and I’ll make less on my sale. My agent doesn’t know how much those closing costs are and which fees I will be required to pay. What are the fees charged to a seller on a VA loan? How much more will it cost me than if a buyer is getting a traditional mortgage?”
The short answer is that there are no predetermined or ‘set’ fees for government-backed loans. That’s why your agent can’t tell you exactly what buyer fees you’ll be expected to pay when the buyer is getting a VA or FHA loan.
With government-backed loans, there are certain loan costs that the lender may charge and the government will not allow the buyer to pay. These are called “non-allowable” fees or expenses.
Lender Fees Are Discretionary
Noticed that I said the lender MAY have costs. Lender fees are discretionary and can vary. Not every lender charges the same amount for closing costs. One lender may charge a tax service fee, wiring fee, or processing fee while another lender does not (or charges a different amount).
“Non-allowable” fees on a VA or FHA loan are at the lender’s discretion. Some lenders don’t charge any non-allowable expenses. If a buyer’s lender doesn’t have non-allowable charges, then the seller doesn’t need to be concerned about any requirement to pay those buyer closing costs.
However, if the lender has charges that are not allowable and the seller does not agree to pay those charges on behalf of the buyer, then the contract could terminate. The lender could agree to waive their non-allowable fees. But that decision isn’t up to the seller.
Case-by-Case Basis For Fees
I hesitate to guess how much more a VA loan may cost you because there are details I do not know about your situation. Not only can the non-allowable fees vary from lender to lender, closing costs also depend on how much the buyer is financing (both the dollar amount and percentage of purchase price).
The difference in closing costs on a VA loan are usually on the buyer’s side. Most VA loans ‘allow’ the seller to pay up to 4 percent of the buyer’s closing costs. But that doesn’t mean the seller must agree to that. It is negotiable.
Typical buyer fees that a jumbo VA loan may require the seller to pay are the Realtor commissions, termite inspection, and title company escrow fee. Those fees can all vary. The non-allowables can also include some lender’s fees like a ‘funding fee,’ loan origination fee, underwriting fee, appraisal, etc. Again, it really depends on the lender.
Title Company Fees Are The Same
As far as the title company fees go, the costs are the same to both buyer and seller whether the buyer is getting a VA, FHA, or traditional mortgage.
Sometimes the VA buyer will increase their purchase offer by the amount of their closing costs. Then the seller will still net the same and the buyer doesn’t have to put down as much. One of the challenges with this approach is making sure the home appraises for the higher amount.
The standard Texas contract contains a contingency for a government-backed loan in paragraph 12 regarding the seller paying buyer closing costs. It allows the parties to limit how much of the buyer’s closing costs the seller will pay.
Some people think that if an amount is given in paragraph 12 of the contract, the lender will ensure they charge at least that much in buyer expenses. It at least gives the lender permission to charge non-allowable fees up to that amount. Again, it depends on the lender.
The opinions expressed are of the individual author for informational purposes only and not for legal advice. Contact an attorney for any particular issue or problem.