What do you pay up front on a VA loan?
Many VA buyers bring no down payment. That doesn't mean the loan has no upfront costs. Here is what usually shows up on the front end:
- The VA funding fee. A one-time fee on most VA loans. It can be paid at closing or added to the loan. Many veterans with a service-connected disability don't pay it at all.
- Closing costs. The appraisal, title and escrow, recording, and the lender's own fees.
- Prepaid items. Homeowners insurance, property taxes and interest that get set aside at closing.
- Discount points, if you choose them. Points are optional. More on them below.
VA.gov says your lender sets the interest rate, discount points and most closing costs. That is why the same VA loan can cost different amounts at different lenders, and why shopping matters.
What are mortgage points?
A discount point is money you pay at closing to lower your interest rate. One point equals 1% of the loan amount. On a $500,000 loan, one point is $5,000.
You are paying some of your interest up front in exchange for a lower monthly payment for as long as you keep the loan. How much each point lowers the rate depends on the lender and the market that day.
Points are different from the lender's origination fee. The origination fee pays the lender for making the loan. Points buy down the rate.
Should you pay points on your VA loan?
It comes down to one question: will you keep this loan long enough to earn the money back?
- Find the monthly savings. Compare the payment with points and without.
- Divide the cost of the points by the monthly savings. That gives you the break-even, in months.
- Compare it to your plans. If you expect to sell, move on new orders, or refinance before the break-even, points usually cost you money. If you plan to stay put for years, they can pay off.
Veterans with PCS orders, or who plan to refinance if rates drop, often skip points. Veterans buying the home they plan to stay in often look harder at them. We run the break-even on your actual quotes so you can see it in months and dollars.
What can a lender charge on a VA loan?
VA limits what a lender can charge you. A lender can charge a flat origination fee of up to 1% of the loan in place of itemizing its own costs, plus certain allowable items such as the appraisal and title. Discount points are separate. The lender sets them, and who pays them can be negotiated with the seller.
Maggie is a mortgage broker, so she can put more than one lender's VA offer side by side for the same home. You see the rate, the points and the fees together, and you choose.
Can the seller pay your points and closing costs?
Often, yes. On a VA loan, the seller can pay your normal closing costs, and VA.gov says sellers or builders may offer credits toward your costs. VA caps seller concessions at 4% of the home's reasonable value.
Here is the part many people miss. Under VA's rules, the seller paying your normal closing costs and normal discount points does not count toward that 4% cap. Concessions are the extras, such as paying your funding fee, paying off a debt for you, or a temporary rate buydown. Points above what the market normally charges count too.
When we write your offer, we decide together how much to ask the seller for and what it should cover, so the request fits the cap and still reads as a strong offer.
Can you roll points and fees into the loan?
On a VA purchase loan, VA.gov says only the funding fee can be added to the loan. Other costs, including points, are paid at closing by you, the seller, or a lender credit.
A VA Interest Rate Reduction Refinance Loan (IRRRL) has its own rules. See our refinance page for how we show the break-even on a refinance.
Who pays the VA funding fee, and who doesn't?
The amount depends on the type of loan, whether it's your first use of the benefit, and your down payment. We use VA's current chart and show the fee in dollars on your options.
Many veterans don't pay it. That includes veterans receiving VA compensation for a service-connected disability. Read VA disability and buying a home for the full list and what happens if your rating comes after closing.
How do you see your own numbers?
Ask for a side-by-side. Text or call Maggie at (916) 549-3131, or use the loan options form. We will show your upfront costs with points and without, and the break-even, before you commit to anything.
All loans are subject to credit approval and underwriting. This page is general information, not a loan offer or tax advice. Surroundings is not affiliated with or endorsed by the Department of Veterans Affairs or any government agency. Maggie B. Hopkins, CA DRE #01750680, NMLS #349517. Surroundings, CA DRE #02220140, NMLS #2528307. Equal Housing Opportunity.
Frequently Asked Questions
Is a VA loan really zero down?
Often, yes. VA.gov says a VA purchase loan can have no down payment as long as the price isn't higher than the appraised value. You still have closing costs, and on most loans a funding fee unless you're exempt.
How much is one point?
One discount point is 1% of the loan amount. On a $400,000 loan, that's $4,000. How much it lowers your rate depends on the lender and the day.
Can the seller pay for my points?
Usually, yes. Under VA's rules, a seller paying your normal closing costs and normal discount points doesn't count toward the 4% concession cap. We confirm the current rule and write it into your offer.
Do I have to pay points?
No. Points are optional. Whether they make sense depends on how long you'll keep the loan. We show you the break-even in months.