Most veterans who apply for VA home loans for the first time think that a mortgage would only cost them the interest on top of their VA principal amount. Well, if such was the case then people would practically just need to apply for a loan and get it as soon as it is approved. But things are not that simple in the real world. Before closing on a VA home loan, it is best to understand everything there is about the mortgage because it is a binding agreement that could greatly affect your present and the future.
What would the loan actually cost – what are you paying for?
The monthly payments you make for your mortgage does not only go entirely to repay the money you borrowed and the agreed-upon interest rate, it also goes to cover certain charges that were involved with the settlement or the closing of the loan.
These fees are charged to cover the lender’s expenses for approving and processing your loan. Most lending institutions would charge application fees up-front while others offer it for free.
Lenders would also charge for loan origination. Loan origination fees are usually manifested in terms of points, where one point is basically one percent of the amount you borrowed. For instance, you would be borrowing a hundred thousand dollars; the origination fee of one point charged on such a loan would amount to thousand dollars, which is one percent of your loan amount.
Apart from the origination fees, the following are the additional closing costs commonly seen on home loans:
appraisal fee
VA funding fee
inspection fee
mortgage insurance
underwriting fee
tax service fees
document preparation or review fees
attorney’s fees
miscellaneous charges
title insurance
recording tax
transfer tax (except for refinances)
property survey
real estate tax
prepaid expenses (although this is not really part of the loan’s actual cost, it is still included in the payment)
termite and pest inspection
homeowner’s insurance
prepaid interest (the interest paid in advance, that would accrue in between the closing and the end of the month’s closing)
What costs would be included in your loan payment?
Your loan payment would, at the very least, be comprised of the interest for one month and the principal. There are some states that would allow you to have your taxes and insurance prorated and then added to your monthly cost. Some states on the other hand may require for you to pay for your insurance taxes as a part of the monthly payments for the loan. The amount at hand would then be placed by the lender in an escrow account or an impound account.
What about appraisal costs?
Most lenders usually charge appraisal costs for the first mortgages; however, some lenders would not charge borrowers up to the time that the loan is closed. Most institutions would hire their own appraiser. Majority of the lenders would pass the cost of appraisal to the applicant immediately.
Appraisal is important because it determines how much the property at hand is valued. This becomes the most important factor in calculating the ratio of loan to value, which is the amount of the loan in relation to the value of the said property. In turn, this ratio would be used to determine the equity in the property at hand.
Are there costs for closing the mortgage?
Lenders would offer loans that either have or do not have costs for closing. This depends largely on the kind of loan being applied for and how much money is being borrowed.
Can these costs be rolled into the loan amount?
Some lenders would provide the borrowers options to distribute the costs to the loan amount. This frees the borrower the need to shell out money immediately, but this would entail a slightly-higher loan amount.
Conversely, the borrower may also opt not to roll the cost and have them charged immediately during the closing of the loan. This would entail a smaller amount for the loan but the charges would have to be immediately dealt with upon closing.
Understanding the costs of mortgage is very important when deciding to close a loan. This is helps the borrower to know what he or she is up to when borrowing money. And this is an important factor with any binding agreement such as a mortgage.