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If you’re getting ready to buy a home and you’re a veteran, active-duty service member, or surviving spouse, a VA loan backed by the Department of Veterans Affairs can help provide financing. But how much does a VA loan cost, and will you pay less financing your home with a VA loan vs. other options?
When it comes to upfront costs, VA loans require no down payment and have typical closing costs of 2% to 6% of your home’s purchase price (up to 4% of these costs can be paid by the seller). A VA loan can also lower your total and monthly mortgage costs, thanks to no private mortgage insurance (PMI) and below-average interest rates. Here’s a closer look at how much a VA loan costs and what VA loan fees you can expect.
Key Takeaways
- The VA backs VA loans to assist eligible veterans, military service members, and surviving spouses in purchasing a home.
- VA loans offer benefits such as no down payment and no private mortgage insurance (PMI).
- Limits on some fees, such as the 1% cap on lender fees, can help limit how much a VA loan costs.
- VA loans include a unique VA funding fee of 1.25% to 3.3%.
What Is a VA Loan?
A VA loan is a home loan option for eligible U.S. military veterans, service members, and surviving spouses. The U.S. Department of Veterans Affairs guarantees or backs a portion of the loan, promising to repay a portion of the mortgage if the borrower defaults.
Options for VA home loans include loans to purchase a home, refinance a home loan, and the Native American Direct Loan program to assist Native American veterans with housing costs.
The VA’s guarantee lowers lenders’ risks, making it easier for borrowers to access home financing while lowering loan costs now and over the life of the loan. With VA loans, borrowers are not required to make a home down payment or pay private mortgage insurance, for example. Rates for VA loans are often lower than conventional mortgage rates, and the VA also limits some lender fees.
How Much Does a VA Loan Cost?
Purchasing a home and taking out a mortgage to finance it comes with several costs and fees. A VA loan has some of the same fees while offering the opportunity to save on others.
When figuring out how much a VA loan costs, account for these fees:
- VA loan rates: This is the rate at which you’ll be charged mortgage interest. Mortgage rates for VA loans are typically lower than those charged on a conventional mortgage. Rates on a 30-year conventional mortgage started at 6.25% as of July 2024, for example, while VA loan rates started at 5.75%.
- VA loan funding fee: The VA charges a loan funding fee to cover the costs of the VA loan program. How much you pay will depend on whether this is your first VA loan and home down payment (see table below). The VA funding fee can be financed through your VA loan and rolled into your mortgage or paid upfront. The VA also allows sellers to pay for all or part of this lending fee.
- Lender 1% origination fee: Lenders charge an origination fee to cover some of their costs in originating your VA loan. However, the VA 1% rule limits total loan origination costs to 1% or less of the total loan amount.
- VA appraisal fee: An appraisal fee covers the cost of having a VA-certified appraiser evaluate the value of the home you’re purchasing. A typical appraisal fee is $400 to $600.
- Home insurance and property taxes: You might need to pay for new hazard and title insurance for the home and any state or municipal property taxes.
Note
You may face various VA loan closing costs to purchase your home, such as a recording fee or a credit report fee.
Negotiable VA Loan Costs
- Seller concessions: Homebuyers may negotiate with the seller to pay certain costs, called seller concessions. Loans backed by the VA allow seller concessions of up to 4% of the total loan amount, and sellers can cover costs such as the VA funding fee, appraisal fee, or mortgage discount points.
- Mortgage discount points: You can also consider paying more upfront to limit borrowing costs over the life of your mortgage. You can opt to pay mortgage discount points, for example, which are an upfront closing cost that lowers your mortgage rate for the life of your mortgage. A lower VA loan rate will lower both monthly payments and the total amount repaid over the life of the loan.
- Down payment: A down payment can offer similar savings through upfront costs. Making a down payment on a VA loan is not required, and you won’t have to pay private mortgage insurance (PMI) if you make no or a low down payment. Still, putting some money down can lower your VA loan amount and total borrowing costs. The VA also discounts its VA funding fee for borrowers who make down payments of 5% or more.
| Down Payment Amount | VA Funding Fee | |
|---|---|---|
| First-Time VA Loan | Less than 5% 5% or more 10% or more |
2.15% 1.5% 1.25% |
| After the First Use of VA Loan | Less than 5% 5% or more 10% or more |
3.3% 1.5% 1.25% |
Table courtesy of U.S. Department of Veterans Affairs
What You Won’t Pay With a VA Loan
All VA home loans have limits on certain borrowing costs and home-buying fees. Some costs that the VA states cannot be charged to or passed to borrowers include:
- Private mortgage insurance
- Brokerage fees or lender commissions
- Lender’s attorney fees
- Prepayment penalties
- HUD or FHA inspection fees for builders
Who Is a VA Loan Right For?
Eligibility for VA loans is open to:
- Members of the U.S. military, including members of the National Guard and Reserve
- Veterans
- Surviving spouses of veterans
You can request a VA home loan Certificate of Eligibility (COE) through your lender or through Veterans Affairs online or by mail. The VA will review your request and decide if you’re eligible for a VA loan and grant you a COE if you are.
Once you have a VA loan Certificate of Eligibility, you can search for the lender offering you the best VA loan rates and terms. Shop at banks, credit unions, and mortgage companies to compare VA loan offers. You can apply for a VA loan directly through the lender and begin shopping for your home.
Compare VA Loan Lenders
| Average Days to Close | Min. Credit Score | Lender Fees | |
|---|---|---|---|
| Veterans United
Best Overall |
32 | 620 | $3,500 |
| Rocket Mortgage
Best for Customer Experience |
38 | 580 | $1,350 |
| Rate
Best for Fast Closing |
16 | 620 | $1,740 |
| American Pacific Mortgage
Best for Bad Credit |
21 | 640 | Not disclosed |
| U.S. Bank
Best Big Bank |
Not disclosed | Not disclosed | Not disclosed |
| Navy Federal Credit Union
Best Credit Union VA Lender |
30 | Not disclosed | $552 |
Alternatives to a VA Loan
Aren’t eligible for a VA loan or want to compare options? Here are alternatives to VA loans.
- Conventional mortgage: A typical loan offered through a private lender, a conventional mortgage is not offered through or backed by a government program. Private lenders often have stricter credit requirements to qualify for these loans. Home buyers can expect to either make a down payment of 20% or more or pay private mortgage insurance.
- USDA loan: Offered through the United States Department of Agriculture, USDA home loans assist low- to moderate-income households to purchase real estate in qualifying rural areas. Like VA loans, USDA loans are guaranteed by the government, allowing eligible borrowers to qualify for a loan with no down payment required.
- FHA loan: Similar to a VA loan, an FHA loan is backed by the government through the Federal Housing Administration. An FHA loan allows down payments as low as 3.5% of the purchase price, though with the requirement to pay for private mortgage insurance. It also offers lower closing costs and has less strict credit requirements compared to a conventional mortgage.
VA Loan vs. FHA Loan
| Loan Term | VA Loan | FHA Loan |
|---|---|---|
| Down payment required | None | 3.5% of purchase price |
| PMI required with low down payment | No | Yes |
| Funding fee | VA funding fee of 1.25% to 2.15% | None |
| Limits on closing costs | 1% of purchase price or less | None |
How Much Are VA Loans Typically?
Limits for VA loans are set by counties, ranging in 2024 from $766,550 for a single-family home in a lower-cost area up to $1,149,825 in higher-cost areas. Lenders will also typically limit VA loans with no down payment to $417,000, or up to $625,500 in high-cost areas.
Do VA Loans Pay Closing Costs?
The VA loan does not pay for any of your closing costs. However, the VA does limit fees lenders can charge to just 1% of the home loan amount. Some closing costs are also limited, as lenders can’t charge commissions, attorney fees, or brokerage fees.
Are VA Loans Cheaper than Regular Loans?
A VA loan can be cheaper than a conventional mortgage for many borrowers, but not all. If you have excellent credit, are well-qualified for a mortgage, and plan to make a down payment of 20% or more, it’s possible a private lender could offer you favorable terms that match or beat VA loan offers. However, a VA loan can be a better fit if you’re putting down less than 20% of the home’s purchase price or have less-than-perfect credit.
When shopping for a lender, request loan offers for both VA and conventional loans and compare terms to decide on the best option.
What Is the VA 1% Rule?
The VA 1% rule limits lender fees on VA loans to no more than 1% of the loan amount. The VA allows lenders to charge either a flat 1% origination fee or itemized charges that cannot add up to more than 1%.
Do VA Loans Require a Down Payment?
No, VA loans do not require a down payment. This is one of the biggest benefits of VA loans compared to a conventional home loan. Borrowers seeking conventional and FHA loans will pay private mortgage insurance (PMI) if they make a down payment of less than 20% of the home’s purchase price, increasing monthly mortgage payments.
A VA loan, on the other hand, does not require a home down payment and does not require private mortgage insurance. However, veterans borrowing with a VA loan can make a higher down payment to lower their VA loan funding fee.
The Bottom Line
VA loans backed by the Department of Veterans Affairs can help provide financing for veterans, active-duty service members or surviving spouses looking to buy a home. VA loans don't require a down payment or private mortgage insurance (PMI), and typically have closing costs of 2% to 6% of a home's purchase price. The loans also usually offer below average interest rates.
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