Whether they're stationed abroad or serving stateside, the American armed forces get to enjoy a bevy of benefits when their tenure in the military ends, such as specially catered health benefits and free college through the Post-9/11 GI Bill. These benefits also extend to housing assistance through Veterans Affairs-backed home loans. And although those loans come with great terms and no need for a down payment, they still have some added costs attached.

What Are Mortgage Closing Costs?

Though the homebuying process is already an expensive effort, mortgage closing costs close the gap between the property's final price and the added expenses that complete the purchase. Those additional costs, which are sometimes called settlement charges, are paid to the mortgage lender for creating and servicing the loan. Closing costs may include origination fees, appraisal fees, land surveys, taxes, and other associated charges. Though the buyer will be responsible for paying a majority of these fees, some costs are covered by the seller, while others can be negotiated.

In 2021, the average closing costs for a homebuyer rose 13.4% from the previous year, with an average cost of $6,905. According to the National Association of Realtors, the median existing-home sales price in April 2022 was $391,200. If someone bought a home at that price and the mortgage had 5% in closing costs attached to it, the final cost would be an additional $19,560.

An outline of these costs is included in the loan estimate that lenders are required to provide within three business days of receiving a mortgage application. In many cases, those initial closing cost estimates may increase or decrease slightly. If that's the case, the final amount will be disclosed next to the original estimate, along with a column outlining the difference, in the lender's closing disclosure form, which is provided at least three days prior to closing.

What Makes VA Closing Costs Different?

Mortgages backed by the VA are inherently different from standard mortgages because the Department of Veteran Affairs (VA) promises lenders that they will be able to recoup some—or all—of the loan if the home goes into foreclosure. That kind of backing significantly lowers the amount of risk the lender anticipates by providing the loan, thus allowing veterans to get approved even if they don't offer a down payment.

Because lenders generally see them as a safer bet, VA-backed mortgages offer lower closing costs. Though typical closing costs range anywhere from 2% to 5% of the home's purchase price, similar costs for VA-backed loans have a funding fee rate that sits between 1.4% and 2.3%, according to the VA. Using that same example from above, a home listed at $391,200 would have only $8,998 in closing costs.

Common VA Loan Closing Costs and Who Pays Them

Though they largely function the same way other mortgages do, VA-backed mortgages feature many of the same closing costs. Still, there's some variation between the costs linked to VA-backed mortgages and regular mortgages. It's important to note that according to the VA, a seller cannot pay more than 4% of the total loan in fees, otherwise known as seller's concessions. That rule only applies to some closing costs, such as the VA funding fee. The rule doesn't cover loan discount points.

Below are some of the closing costs you can expect to see on a loan estimate for a VA-backed mortgage.

Fees the seller must cover

• Real estate professionals' commission fees. Realtors have to get paid too, so any commission fees they would collect from the sale of a home or property are covered by the seller.
• Buyer broker fee. Similar to the commission fees listed above, this covers any brokerage fees a real estate broker may charge. In most cases, both the listing broker and the buyer's agent's broker share in the commission.
• Brokerage fee. A brokerage fee is required when a broker is engaged to complete transactions or fulfill other specialized needs, including purchases, sales, and negotiations.
• Termite report. No one wants to get a house that's at risk of a termite infestation. Because the seller is trying to leave that home, they are responsible for proving that the house is structurally sound and not getting eaten away by the voracious bugs. This is always the seller's responsibility unless the buyer is using a reference loan.

Fees the buyer can cover

• VA funding fee. This is a one-time payment that the veteran, service member, or survivor pays on a VA-backed loan. According to the VA, the fee "helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn’t require down payments or monthly mortgage insurance."
• Loan origination fee. This is simply the fee that a lender charges when processing a loan application. This kind of fee is generally based on the total loan amount and can be negotiated.
• Loan discount points. These points can serve as a sort of tradeoff between the buyer's initial costs and their monthly payment moving forward. These points come at a financial cost, which is calculated in comparison to the loan amount. Using these points can result in a lower interest rate because you're paying more up front.
• VA appraisal fee. If you're going to use the VA's money to buy your new house, the property is going to need to be appraised by someone certified through the VA. This fee helps cover that appraiser's time, travel, and other needs for the assessment. Unlike some of the other fees, this one can potentially be negotiated with the seller to be added to their list of concessions.
• Hazard and title insurance, state and local taxes, and real estate taxes. As the soon-to-be new owner of the property or home, the buyer will have to pay for continued hazard insurance coverage, as well as the annual taxes associated with the property.
• Recording fee. When the sale is complete, a record of its completion will need to be noted by the local government. A recording fee is charged so the transaction can become part of the public record.