A common myth with VA loans in Orange County is that the seller is required to pay some or all of the closing costs on behalf of the Veteran buying the home. This is not true. As a matter of fact the seller is not “required” to pay anything for the Veteran. Sadly, this misconception is held by many Orange County real estate agents and can make it difficult for a Veteran to get their offer to buy a home accepted in a multiple offer competitive bidding situation.
What about “Non allowable” Costs?
The reason for the confusion in regards to closing costs stems from the fact that there are costs which the Veteran cannot pay. Certain lender fees, escrow closing fees, and the termite inspection fee cannot be paid by the Veteran. Does this mean the seller has to pay them? No, they do not. As a matter of fact there are situations where the Veteran is allowed to pay these “non allowables”.
When can the Veteran Pay “Non Allowable” Costs?
According to VA guidelines the Veteran can pay a 1% Origination Fee. However many VA lenders do not charge an Origination Fee. In the case that the lender does not charge an Origination Fee, or at least the full 1% Origination Fee, then the Veteran is allowed to pay up to 1% of the loan amount in what would have been “non allowable” costs.
Orange County, which tends to have higher priced homes than other parts of California, has seen wide usage of the VA loan program. An Orange County Veteran can buy a home for a price as high as $668,750 (2013 Orange County VA loan limit) with no down payment. Let’s say that a Veteran buys a home for $500,000 with no down payment. A lender who doesn’t charge an origination fee would allow for the buyer to pay $5,000 towards what would have been “non allowable” closing costs. (1% x $500,000). In most cases the non allowable closing costs will be less than 1% of the loan amount, at least in Orange County where home prices are high.
What if the Veteran Doesn’t Want to Pay Closing Costs?
There are often times situations where the Veteran doesn’t want to pay closing costs and the seller doesn’t want to either. If there are multiple offers on a home it can be difficult for Veteran home buyer to have a seller pay closing costs if competing offers are not asking for costs to be paid. This is where knowing the options available is important. Most lenders have the ability to adjust the rate up slightly and then cover some or all of the closing costs. So yes, a VA NO NO (no down payment and no closing costs) is possible even when the seller and Veteran pay nothing towards closing costs. You just need to be working with a local Orange County VA lender who understands and can provide you with several loan scenarios to choose from.
Authored by Tim Storm, a California Mortgage Loan Officer MLO 223456 – Please contact my office at the Emery Financial. Direct line at 949-640-3102. www.OrangeCountyVALoans.com