One of the biggest misunderstandings about VA loans goes something like this:

“It's a zero-down loan, so I don't need any money to buy the house.”

Not exactly.

A VA loan can allow an eligible borrower to purchase a home with no required down payment.

That's a hell of a benefit.

But zero down does not automatically mean zero cash at closing.

There can still be closing costs, prepaid expenses, taxes, insurance and other costs associated with buying the home.

The good news?

VA loans also give us some pretty damn useful ways to structure those costs.

You just need to understand the rules.

WHAT ARE VA LOAN CLOSING COSTS?

Closing costs are the expenses associated with getting the mortgage and completing the purchase.

Depending on the transaction, they can include things like:

Loan origination charges.

Discount points.

The VA appraisal.

Credit-related fees.

Title charges.

Recording fees.

Taxes.

Homeowners insurance.

Prepaid interest.

And potentially the VA funding fee.

Not every borrower pays exactly the same costs.

The property matters.

The lender matters.

The loan amount matters.

The state matters.

And how we structure the transaction matters.

That's why I don't like throwing out some generic:

“Closing costs are always X percent.”

Show me the actual loan.

DOES ZERO DOWN MEAN ZERO CASH TO CLOSE?

No.

This is probably the most important distinction in this entire article.

Down payment and closing costs are not the same thing.

You may qualify for a VA purchase with no required down payment and still have money due at closing.

That could include closing costs and prepaid items such as property taxes, homeowners insurance or interest.

But the amount coming out of your pocket can change dramatically depending on how the transaction is structured.

Which brings us to sellers.

CAN THE SELLER PAY VA CLOSING COSTS?

Yes.

And this is where VA financing can get really interesting.

VA allows sellers or builders to provide credits that can cover some or all of a buyer's allowable closing costs.

That can reduce the amount of money the Veteran needs to bring to closing.

This is why your offer strategy matters.

A seller credit isn't free money.

It is part of the negotiation.

Maybe we negotiate the purchase price.

Maybe we negotiate closing-cost assistance.

Maybe we negotiate both within the rules and economics of the transaction.

The point is:

Don't assume the number on your first worksheet is automatically the amount you're writing a check for at closing.

Structure matters.

WHAT IS THE 4% VA SELLER-CONCESSION RULE?

This one gets screwed up constantly.

You'll hear somebody say:

“The seller can only pay 4% of the Veteran's closing costs.”

That's not an accurate way to explain the rule.

VA distinguishes between normal closing costs and seller concessions.

VA says there is no VA-imposed percentage limit on credits covering ordinary closing costs.

The separate seller-concession limit is generally 4% of the property's reasonable value.

Seller concessions can include things of value such as paying the VA funding fee, paying certain debts on the Veteran's behalf, or paying for a temporary buydown.

That's different from simply paying customary closing costs.

That distinction matters.

A lot.

CAN THE SELLER PAY THE VA FUNDING FEE?

Yes.

If you owe a VA funding fee, the seller can potentially pay it as a concession.

The funding fee can also generally be financed into the VA loan.

Or you can pay it at closing.

And some eligible borrowers are completely exempt from the funding fee.

So before we decide what to do with the funding fee, I want to know:

Do you actually owe one?

How much is it?

Does financing it make sense?

Would a seller concession make sense?

Again:

Run the damn numbers.

WHAT CAN ACTUALLY BE FINANCED INTO A VA PURCHASE LOAN?

This is another important one.

On a VA purchase loan, you generally cannot just roll all of your closing costs into the loan amount.

VA specifically allows the VA funding fee to be financed.

The other closing costs generally need to be paid at closing by the borrower or covered through another permitted source, such as negotiated seller or lender credits.

That doesn't mean you automatically need a giant pile of cash.

It means the transaction needs to be structured correctly.

WHAT ABOUT LENDER CREDITS?

Another option can be a lender credit.

Depending on the loan and pricing, a lender may provide a credit toward closing costs in exchange for different loan pricing.

That could mean accepting a slightly different interest rate in exchange for reducing the amount of cash needed at closing.

Is that smart?

Maybe.

Maybe not.

It depends on how long you expect to keep the loan, how much the credit saves you today and what the different payment costs you over time.

There is no free money in mortgages.

There are tradeoffs.

Our job is to understand them.

WHAT ARE PREPAIDS?

This is another place borrowers get confused.

Not everything you bring to closing is technically a lender fee or “closing cost.”

You may also need money for things such as:

Homeowners insurance.

Property taxes.

Prepaid interest.

Initial escrow deposits.

Those are often referred to as prepaids.

You're not necessarily paying the lender to make the loan.

You're funding expenses associated with owning the house and establishing the mortgage.

That's why I want borrowers looking at the entire cash-to-close number, not just one line labeled closing costs.

WHAT ABOUT EARNEST MONEY?

Earnest money is another piece of the puzzle.

If you've already deposited earnest money as part of the purchase contract, that money may generally be credited toward what you owe at closing, subject to the final transaction.

So if somebody tells you:

“You need $12,000 at closing,”

my next question is:

“Is that before or after your earnest money deposit?”

Details matter.

CAN A VA BUYER REALLY GET INTO A HOUSE WITH VERY LITTLE CASH?

Absolutely.

I've seen VA transactions structured where the Veteran's out-of-pocket expense is dramatically reduced through a combination of:

No required down payment.

Seller-paid closing costs.

Lender credits.

Funding-fee exemption or financing.

Earnest money already deposited.

But that doesn't mean every VA purchase should be structured to get the borrower to the closing table with $37 and a Taco Bell gift card.

Sometimes bringing more cash makes financial sense.

Sometimes keeping that cash in the bank makes more sense.

The goal isn't:

“How do we make the cash-to-close number as small as humanly possible?”

The goal is:

“How do we structure this mortgage in the smartest way for this Veteran?”

DON'T JUST LOOK AT THE LOAN ESTIMATE AND PANIC

Early in the mortgage process, you'll receive a Loan Estimate.

Read it.

But also understand what you're looking at.

Ask questions.

Which costs are lender charges?

Which are title charges?

Which are prepaid expenses?

Is there a funding fee?

Are you exempt?

Are seller credits already reflected?

Is earnest money reflected?

Are lender credits reflected?

VA also requires lenders to provide a Closing Disclosure at least three business days before closing, showing the final loan terms, fees, closing costs and estimated monthly payment.

If you don't understand a number:

Ask.

You're borrowing hundreds of thousands of dollars.

You are allowed to ask what the hell you're paying for.

THE BOTTOM LINE

VA loans can provide eligible Veterans with one of the best home-financing benefits available.

But zero down isn't the same thing as zero closing costs.

You may have closing costs.

You may have prepaids.

You may have a funding fee.

But you may also have seller credits, lender credits, a funding-fee exemption, earnest money already deposited and other ways to structure the transaction.

That's why the answer isn't:

“VA closing costs are X.”

The answer is:

Let's build the actual loan and see what you really need.

WANT TO KNOW YOUR REAL CASH TO CLOSE?

Buying a home with your VA benefit?

Have a Loan Estimate from another lender?

Or were you told you need a pile of cash even though you're using a VA loan?

Send me the numbers.

I'll break down what you're actually paying, what's negotiable, what may be covered and what your real cash-to-close number looks like.

No guessing.

No bullshit.

Just the math.