Here at Low VA Rates we seek to educate our borrowers about the VA loan process, we get a lot of questions about closing costs, particularly when it comes to rolling closing costs into the loan balance. Many of our customers ask, “can closing costs be rolled Into a VA Loan?” It’s clear to us that this is something the VA loan world is wondering about so we will break everything down and explain how this works in this article.
First Off, What Are Closing Costs?
Let’s make sure we define closing costs before explaining how they can be paid. Closing costs are kind of like taxes, for lack of a better term. Let’s say you’re at the store looking to buy a shirt. The shirt may be fifteen dollars, but when you check out, you’ll probably end up paying sixteen or seventeen dollars. Why? Because there are closing costs associated with the purchase; in this case, we’d refer to them as taxes. Closing costs are just like a sales tax. When you go to get a mortgage, there are certain unavoidable costs associated with approving and processing your loan, such as origination fees, points, taxes, insurance, title fees, and appraisal fees, to name a few.
How Do I Pay Closing Costs?
Now that we know what closing costs are, let’s cover how best to pay them. Generally speaking, there are two ways to pay closing costs. The most common way is to pull out your wallet and just write a check to whichever institution is in charge of closing. But who wants to pay out-of-pocket? Not many of us. That’s why there’s a second option. The other way you can pay your closing costs is by rolling them into your loan. This is easier to do with VA loans than other loan types, and will carry different ramifications depending on whether you’re purchasing or refinancing.
Rolling Closing Costs into the IRRRL
The most popular loan here at Low VA Rates is the Interest Rate Reduction Refinance Loan, or IRRRL. With an IRRRL, the VA allows borrowers to roll every single closing cost into the loan balance. Here’s how it works:
Let’s say you’ve got $5000 in closing costs. If your loan amount is $100,000 at the time of refinance, and you want to roll your closing costs, you’ll borrow $105,000 in total. That way, the $5,000 in closing costs will be paid through monthly mortgage payments just like the rest of the loan. You’ll also be doing this at a lower interest rate, and your payment could still go down, even though your balance is increasing.
If you don’t want your balance to go up, but you still want to roll your closing costs, there is something else you can do. Instead of taking a higher balance, you can take a higher interest rate. In this scenario, the lender covers the closing costs for you, and you pay them back in the form of interest. It’s not exactly the same thing as rolling your closing costs, but it’s similar.
FHA and conventional loans normally won’t allow you to increase your mortgage balance. The ability to roll closing costs into the loan with such ease is somewhat unique to VA loans. That’s why we want every veteran to be aware and take advantage of them! The VA has designed these loans to make it easier for veterans to afford housing at a lower interest rate, and they’ve set up many accommodations for you at every stage.
We at Low VA Rates strive to make the loan process as easy and as comprehensible as possible for our borrowers. We hoped this answered the question can closing costs be rolled into a VA loan? Give us a call at 855-223-0705. If you have further questions about the VA loan process. Thank you for taking the time to visit our page today.