We get tons of questions from First Time Home Buyers on this site, and I do my very best to answer ever single one… but sometimes, I need to just pull the question out and answer it as a post, because there’s more information that I need to provide than a single line of text. I recently had the following question that essentially addresses Earnest Money for VA Loans in NC:
I’m looking to purchase my first home using a VA loan. I have always heard that the VA loan is great because you don’t have to pay money down, but it’s recently been called to my attention that I may have to pay a percentage of fees at closing or when I put in an offer on a house? I’m just not sure what I need to be prepared for. I’d greatly appreciate any help. Thanks!
This is a great question, because VA Loan Closing Costs and prepaid items (like taxes and insurance) can cost upwards of $8000 to $10,000 depending on the sales price and what time of year you close.
Many of the homebuyers we talk to in NC are ready to pay SOME of the closing costs, but not anywhere near $10,000. VA Loans are 100% no money down mortgage loan, so often times the Veterans we work with don’t need more than a $1000 or so to cover their portion of the costs… because the Seller Will Often pay for closing costs on a VA Loan.
However, Closing Costs can NOT be “rolled in” to a VA Loan.Likewise, a Veteran will be responsible for paying an Earnest Money Deposit, and Due Diligence fees, just like they would on other loans. Typically Earnest money is an amount of at LEAST $500. Per the Contract, the negotiated check is deposited with the Due Diligence fee check. In most cases, the Earnest Money is held by a Third Party (in NC that’s usually the Selling/Listing Agents Brokerage) and is credited towards the home buyer’s down payment and/or closing costs. Remember that once the contract is agreed upon, the check is actually cashed, so be sure your funds are available.
So, in answer to the question, let’s say you are purchasing a $250,000 home in NC – you would need at least $500 for the Earnest Money Deposit, then you could have the Seller pay MOST of your closing costs, but you will need at least enough cash to cover:
- your portion of taxes (depending on the time of the year you close, that could be 3 months or up to 9 months)
- your first year plus 2 months of Hazard Insurance
- Interim Interest for at least 5 days
- Your part of the Title Insurance
- Home Owner’s Inspection (which depending on where the house is, and how large it is could be anywhere between $300 and $600)
- Appraisal and Credit Report fee (if the Seller is not paying for it)
If you use a Real Estate Agent to help you negotiate your Contract, they can help you negotiate the best amount of Earnest Money and Due Diligence fees that you should put in your contract. In general, we suggest that most Veteran’s go into a contract to purchase a home with at least 2.5% of the Sales Price in “cash” to use for the transaction. That is generally enough to get the lights cut on, pay your part of the costs, and have a little bit of money for a new Refrigerator, or Washing Machine!
Remember that there are some closing costs that Veterans are not going to pay in NC, again we can work with you and your Real Estate Agent to negotiate the best fees, and which ones a Seller can help you pay!
Programs available to you! Did you know that it might be to your advantage to make a Down Payment on a VA loan? Call us about VA Mortgage Loans! Steve Thorne, NC Mortgage Experts 919-649-5058 Or, connect with us on Facebook!