Orange County FHA, VA & First Time Buyer Loan Information: Who is Responsible for Buyers Closing Costs on a VA Loan?

My goal is to provide valuable information for home buyers, both First Time Buyers and Move Up Buyers. This information will be about loan programs such as FHA ,VA, Conventional Fannie Mae and Freddie Mac, Reverse Mortgages, and even Portfolio Jumbo programs. I will also touch on tax advantages of homeownership, Rent vs. Own analysis, and any other aspect of loans and home ownership that will be of interest to Orange County home buyers and homeowners.

Who is Responsible for Buyers Closing Costs on a VA Loan?

Who is responsible for paying the closing costs for the home buyer on a VA Loan in Orange County, CA? Many real estate agents and the Veterans who are buying the home assume the buyers costs need to be paid by the seller. Or that certain costs, such as the "non-allowables" need to be paid by the seller. This common misconception can make it tough to get an offer to purchase a home accepted if the listing agent assumes the their seller will be paying costs that they wouldn't need to pay with other offers.

What are "Non-Allowable Costs"?

"Non-Allowables" refer to certain closing costs that the Veteran, in certain situations, cannot pay. This would mean that either the seller, the real estate agents, or the lender (using a lender credit), need to pay them. Non-allowable costs include the escrow closing fees, lender fees, termite inspection, and a few other fees. However, there is a "loop hole" that allows for the Veteran to pay non-allowables from their own funds. 

When Can a Veteran Pay Non-Allowables?

There are times when the Veteran can pay non-allowable closing costs. VA has always allowed for a 1% Loan Origination Fee. However, many lenders do not charge a 1% Origination Fee. In this case, VA allows the Veteran to pay up to 1% of the loan amount in what would have been non allowables costs. This may not help too much in some low cost areas of California, but in the higher costs areas of the state, like Orange County, 1% goes a long way. For example, for a Veteran buying a home in Irvine for $500,000 would be able to pay $5,000 (1% of $500,000) towards non allowable closing costs. In most cases, the non allowables should be less than $5,000. (If the non allowable costs are more than $5,000, you should probably check with a few different lenders). High Cost California VA Loan Limits listed by County.

Why Would the Veteran Want to Pay the Non-Allowables?

Getting an offer accepted in the current Orange County real estate market is not easy. Multiple offers, all cash offers, Conventional loan offers, and even FHA offers all can make a VA offer look weak if the Veteran is asking for closing costs. But if the Veteran is working with a real estate agent who is familiar with VA financing and a lender who is a VA loan specialist, then other options can be provided which can help make the offer competitive with other financing offers. Many times it is possible for the lender to even offer a scenario that would allow for enough lender credit that the Orange County Veteran will need no money to close escrow, even when the seller is not contributing a dime towards closing costs. 

VA Loans are Easy. Really!!!

Closing a VA loan is easier than other types of financing in many respects. The only real difference between a VA loan and other types of financing, as far the the seller is concerned, is the requirement for a clear termite report. One of the most difficult things in mortgage processing is the documentation of funds to close. Following the paper trail can be difficult. In many situations with VA financing there are no funds even needed for closing,which makes approval that much easier. 30 day closings for a VA loan are easy if being handled by an experienced Orange County VA lender.

Authored by Tim Storm, an Orange County, CA VA Mortgage Loan Officer MLO 223456– Please contact my office at Home Point Financial for more information about an Orange County, CA Mortgage. 949-640-3102. www.OrangecountyVALoans.com

Contact us for your Orange County VA Mortgage:

949-829-1846 | tstorm (at) ochomebuyerloans.com

 

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Comment balloon 23 commentsTim Storm • May 27 2013 09:28PM

Comments

Good morning Tim, this is very helpful information and I've closed my share of VA's but have never thought of this scenario for closing cost to be paid by the Mortgagee...thanks for sharing.

Posted by Bob Ratliff, "Sold on Bob" (CB Stagecoach ) about 5 years ago

Thank you for the information. I will bookmark this post and share it with others.

Posted by Gita Bantwal, REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel (RE/MAX Centre Realtors) about 5 years ago
Tnnks for this information .."There are times when the Veteran can pay non-allowable closing costs. VA has always allowed for a 1% Loan Origination Fee. However, many lenders do not charge a 1% Origination Fee. In this case, VA allows the Veteran to pay up to 1% of the loan amount in what would have been non allowables costs." Just had a challenging VA closing.
Posted by Margaret Rome, Baltimore Maryland, Sell Your Home With Margaret Rome ( HomeRome Realty 410-530-2400) about 5 years ago

Good explanation.  I do a lot of VA loan home sales and didn't even know all of this info. 

Posted by Marc McMaster, Putting my clients before myself (RE/MAX Centre Realty) about 5 years ago

VA loans are such a great program for our vetrans and one of the few that still offer 100% financing.

Posted by Kerry Lucasse, Your Nest Atlanta Real Estate Consultant (eXp Realty - Nest Atlanta Team) about 5 years ago

Tim, good information for the VA purchaser. The options for paying the non-allowables are helpful.

Posted by Michael Setunsky, Your Commercial Real Estate Link to Northern VA about 5 years ago

Well written, Tim - "thank you".

Posted by Raymond Denton, Simple Man (Academy Mortgage Corporation) about 5 years ago

Have 5 bases within a 100 miles here. Have great lenders here that handle military. Never had a VA loan not close. Thanks for the reminders.

Posted by Bill Reddington, Destin Florida Real Estate (Re/max Southern Realty) about 5 years ago

Tim

Very well written.  This should help Realtors to better understand options under VA.

Thanks for your post.

Posted by Wayne L. Brown (Franklin Advantage Inc.) about 5 years ago

Only had one problem with a VA loan and it was the problem of the borrower's wife. Had to help her write a hardship letter of explanation. Her loan officer tried to help and I thought I was looking at letters my 6 year old granddaughter could have eve written better. That loan officer just graduated with a Master's in Business this year and I still can't believe it. Anyway we did close but almost didn't.

Posted by Theresa Akin (CORPUS CHRISTI REALTY GROUP) about 5 years ago

Great post by the way!

Posted by Theresa Akin (CORPUS CHRISTI REALTY GROUP) about 5 years ago

Great blog. I learned a few things today.

Posted by Kevin Henry (Henry Realty) about 5 years ago

I have seen sellers take other offers because of the perception a VA loan will be a hassle for a seller.

Posted by Erica Ramus, MRE, Schuylkill County PA Real Estate (Erica Ramus - Ramus Realty Group - Pottsville, PA ) about 5 years ago

Thanks for expanding my knowledge on VA financing options. I never realized lender credit was an option.

Posted by Rosie Moore (Serving Sugar Land, Richmond, Rosenberg, Missouri City) about 5 years ago

Hi Tim, I haven't had a VA closing in a while..but fortunately that one went smooth and closed without a hitch. It's nice to know that there are some options out there that would make their offer a bit more desirable when up against multiple offers. Thanks for the info.

Posted by Cindy Westfall, ABR,GRI Your Tualatin & Portland Metro Real Estate (Premiere Property Group,LLC Portland Metro & Suburbs Oregon) about 5 years ago

Good information Tim.  As our market shifts so does what sellers are willing to pay on a VA loan for buyers.

Posted by Cindy Jones, Pentagon, Fort Belvoir & Quantico Real Estate News (Integrity Real Estate Group) about 5 years ago

VA is a great programs for veterans.  However, it is frustrating that VA will not permit the VA buyer to pay any portion of the buyer agent fee.  This means sometimes they must work directly with the seller's agent whose job is to look out for the seller and not the buyer.  With very low co-broke fees or entry only with a flat fee e.g. $500.... it is difficult for agents to work with a VA buyer.  Fha did away with this restriction years ago..

Posted by Joan Whitebook, Consumer Focused Real Estate Services (BHG The Masiello Group) about 5 years ago
Hi Tim, Excellent post. Part of the CE that agents and brokers are required, should have some mandatory credit required in this category of Real Estate Finance. A VA expert in financing is the very least a buyer should seek out but when coupled with an agent savvy with the VA financing, makes VA purchasing and closing a pleasure to do. Most difficulties are usually caused by either inexperienced agents or by lenders not trained in the rules and procedures.
Posted by William Johnson, San Diego Real Estate Voice, GRI CRS e-Pro CDPE (RE/MAX Associates) about 5 years ago

Excellent information about VA loans in today's world, Tim!  When I was first licensed in 1981, I worked in a Century 21 office near a local Air Force base.  Clearly about half my business was veterans or active military using VA loans to purchase homes.  The rules and regs for VA loans today are considerably different than back then. 

Posted by Myrl Jeffcoat, Greater Sacramento Real Estate Agent (GreatWest Realty) about 5 years ago

Tim: I save your blog because it has a lot of great information, some of which I never used. I am 30 years in Real estate & I still get my eyes opened by professionals like you.

Posted by Jimmy Faulkner, The Best Of St. Augustine (Florida. Homes Realty & Mortgage) about 5 years ago

Great post on how to make a VA loan work in today's market.

Posted by Michelle Carr-Crowe-Top 1% Diamond Certified Real Estate Team Sells Cupertino San Jose Homes-Just Call 408-252-8900, Family Helping Families Buy & Sell Homes 40+ Years (Get Results Team...Just Call (408) 252-8900!) about 5 years ago

Thank you for the comments.

Theresa - Yes, not everyone can write. I usually have the borrower give it a shot but will quite often help to make the letter more presentable for the underwriter.

Erica - I see this too often, especially in my Orange County, CA, where VA is not as common as in other parts of the country. But it really is an easy loan program.

Rosie - I use a lender credit on most of my VA deals, either to cover some or all of the closing costs and prepaids. I tend to work with larger VA loans amounts, $400,000 and up, which helps. 

Cindy W - Yes. I'm trying to get the word out there that VA financing is nothing to fear.

Cindy J - Yes, as we have now moved into a sellers market it has become difficult to have an offer seriously considered if the buyer is asking for a closing cost credit. In many situations its not even necessary.

William J - I completely agree with everything you said. I pick up a lot of VA buyers from my blogging and either try to steer them to an agent experienced in working with VA buyers or will have a consultation with their agent to make sure the agent is aware of the options available, as well as the requirement for a clear termite.

Myrl - Things have definitely changed. I got my license in 1989 and the changes since then are dramatic. The changes since 2008 are dramatic in many respects. Changes in how loan officers are paid has actually brought about some of the changes. It used to be standard that lenders charged a 1% Origination Fee. That is no longer the case, which has made it easier to substitute the non allowables for what would have been the Origination Fee.

Thank you Jimmy :)

Posted by Tim Storm, Orange County FHA and VA Home Loan Specialist (Home Point Financial) about 5 years ago

Lots of great information on the VA Loan!! You definitely know this well, Tim. I appreciate you taking the time to share.

Posted by Jane Chaulklin-Schott, TeamConnect Luxury Homes - Orlando, Florida, 32836 (TEAMCONNECT REALTY - (407) 394-9766) about 5 years ago

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