Understanding The Closing Disclosure On A VA Loan

VA loans offer some of the most valuable benefits in home financing, including zero down payments and no monthly mortgage insurance. Yet, the final stages can be daunting—especially when reviewing your Closing Disclosure (CD).

This comprehensive five-page document spells out your loan details, closing costs, and future obligations. Overlooking errors or misunderstandings can be costly, so it’s vital to understand how each line item applies to your VA loan.

In this guide, we break down every page of the CD, highlight VA-specific considerations, and offer actionable tips. By the end, you’ll have the clarity needed for a confident closing day.

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What Is the Closing Disclosure for a VA Loan?

The Closing Disclosure (CD) is a standardized, five-page form mandated by the Consumer Financial Protection Bureau (CFPB). It became mandatory under TRID (TILA-RESPA Integrated Disclosure) rules, replacing older forms like the HUD-1 Settlement Statement and Truth-in-Lending Disclosure. For VA loans, the Closing Disclosure includes specific items such as the VA funding fee, potential seller concessions, and other costs unique to VA financing. Legally, your lender must provide the CD at least three business days before you close, giving you time to review and spot any discrepancies or errors.

This crucial document protects borrowers—especially veterans—from predatory lending practices by ensuring transparency. By comparing your Closing Disclosure to your original Loan Estimate, you can quickly identify changes in costs, interest rates, or loan terms before signing on the dotted line.

Why the Closing Disclosure Matters for VA Loan Borrowers

Transparent Costs: It clearly outlines all fees, including the VA funding fee, origination fees, and prepaid items.
Regulatory Compliance: VA loans have special rules (e.g., no non-allowable fees to the veteran), and the CD confirms compliance.
Prevent Surprises: Reviewing the CD helps you avoid unexpected interest rates or balloon payments.
Legal Protections: The three-day review period (required by CFPB) ensures you have the opportunity to question or dispute inaccuracies.

Remember, VA loans are designed to protect veterans. The CD is your best friend in verifying the lender and settlement agent are following VA guidelines.

A Line-by-Line Breakdown of the Closing Disclosure

The Closing Disclosure is divided into five pages. Below is an exhaustive look at each page, with a focus on how items specifically apply to VA loans.

Page 1: Loan Terms, Projected Payments & Costs at Closing

Section 1: Loan Terms

Loan Amount: This is the total amount you’re borrowing, including any financed VA funding fee. Since many veterans opt to finance the funding fee, confirm that figure matches your expectations.
Interest Rate: VA loans generally offer competitive rates. Ensure the rate here matches what you locked in. If it’s higher, inquire immediately.
Monthly Principal & Interest: This line shows the core monthly payment before adding any escrow (taxes/insurance). If you financed the funding fee, expect a slightly higher monthly payment.
Prepayment Penalty: VA loans rarely include prepayment penalties. If you see one, it’s a red flag—contact your lender.
Balloon Payment: Also uncommon for VA loans. Any balloon payment here is another potential red flag.

Section 2: Projected Payments

Years 1-7 / 8-30 (if applicable): Shows how your monthly payments may change over time. For fixed-rate VA loans, this section should stay consistent.
Mortgage Insurance (MI): Usually listed as “N/A” for VA loans because there’s no private mortgage insurance requirement, but watch for any mistakes.
Estimated Escrow: Includes property taxes and homeowners insurance. VA loans typically require an escrow account unless certain exemptions apply.

Section 3: Costs at Closing

Estimated Closing Costs: The total of all lender fees, third-party charges, prepaid costs, and other expenses. You’ll find a detailed breakdown on Page 2.
Estimated Cash to Close: The amount you need to bring to closing. This number factors in down payment (often $0 for VA loans), credits, and other adjustments.

Page 2: Closing Cost Details

Page 2 breaks down all costs into Loan Costs (Sections A, B, C) and Other Costs (Sections E, F, G, H). For VA loans, pay special attention to non-allowable fees.

Section A: Origination Charges

Origination Fee: Typically capped at 1% of the loan amount by VA guidelines. If you see more than 1%, ask for clarification.
Application / Underwriting Fees: Sometimes lumped together, must comply with VA’s fee restrictions.

Section B: Services You Cannot Shop For

Appraisal Fee (VA Appraisal): VA sets regional fee schedules (e.g., $500–$1,200). Confirm it matches your state’s standard VA appraisal cost.
Credit Report Fee: Typically minimal; ensure the amount aligns with actual credit pull costs.

Section C: Services You Can Shop For

Title Search / Title Insurance: Fees vary by state and provider. This protects you and the lender from title issues.
Pest Inspection: A pest inspection is common in VA loans; in many states, the seller or lender covers this cost due to VA rules.

Section E: Taxes and Other Government Fees

Recording Fees: Charges for recording the deed and mortgage documents. Should be standard in your area.

Section F: Prepaids

Homeowners Insurance Premium: Typically covers the first 6–12 months. This cost is often required to secure coverage from day one.
Property Taxes: Some local jurisdictions require an upfront deposit.

Section G: Initial Escrow Payment at Closing

Escrow Setup: Reflects two to three months of taxes and insurance that your servicer will hold.

Section H: Other

VA Funding Fee: This is typically listed here if you’re paying it as a lump sum at closing, or it may appear in Section A if you’re financing it. Double-check the percentage based on your down payment and prior VA loan usage.
Other VA-Specific Fees: Any specialized costs or credits not included above.

Page 3: Calculating Cash to Close & Summaries of Transactions

This page consolidates all credits, fees, and payments to show your “Cash to Close”. For VA loans:

Down Payment: Often $0 (zero down), unless you choose to put money down to reduce the VA funding fee.
Seller Concessions: VA allows the seller to contribute up to 4% of the sale price toward closing costs, know as the VA 4% rule, prepaids, or the funding fee. These credits reduce your cash to close.
Earnest Money Deposit: Already paid to the seller or escrow. It’s subtracted from what you owe at closing.
Adjustments & Prorations: If the seller prepaid taxes or HOA dues, this section shows how much you owe or how much you’re credited.

Verify that all calculations align with your purchase contract and Loan Estimate. If the final numbers differ significantly, ask your lender or real estate agent why.

Page 4: Loan Disclosures

This section covers policies and legal details, including:

Assumption: States whether a future buyer can assume your VA loan. Many VA loans are assumable, but verify if that’s important to you.
Demand Feature: Indicates if your lender can require early repayment. VA loans typically do not include this.
Late Payment Policies: Explains penalty fees if your payment is overdue.
Negative Amortization: Not generally part of VA loans; should state “No.”
Escrow Account Details: Confirms whether taxes and insurance are escrowed. For most VA loans, they are.

Page 5: Loan Calculations & Other Disclosures

The final page includes:

Loan Calculations: Total of Payments, Finance Charge, Amount Financed, APR, and Total Interest Percentage (TIP). Ensure the APR and TIP match what you expect for a VA loan.
Other Disclosures: References to appraisal rights, refinancing disclaimers, and the CFPB’s role. There should be a statement on how to file complaints if something is incorrect.
Contact Information: Lender, mortgage broker, real estate broker, and settlement agent details. Note these for future reference.
Confirm Receipt: Your signature does not mean you accept the loan—it simply confirms you received the document.

VA Funding Fee: How It Appears on the Closing Disclosure

The VA funding fee is a unique component of VA loans, helping to keep the program self-sustaining. Depending on whether this is your first or subsequent use and your down payment amount, the percentage varies. It can be either:

Paid Upfront: Listed in Section H on Page 2.
Financed: Rolled into your loan amount on Page 1.

Be sure to verify the correct fee percentage. For example:

First-time use with no down payment: around 2.15% (active duty/veterans).
Subsequent use with no down payment: around 3.3%.
Exemptions: Veterans with a 10% or higher service-connected disability rating typically pay no funding fee.

Comparing a VA Closing Disclosure to a Conventional Loan Closing Disclosure

While both disclosures are structurally similar, key differences for VA loans include:

VA Funding Fee vs. Private Mortgage Insurance (PMI): Conventional loans often require PMI if you put less than 20% down. VA loans replace PMI with the one-time funding fee.
Non-Allowable Fees: The VA restricts certain fees lenders can charge. Conventional loans have fewer limits.
Seller Concessions: For VA loans, the seller can pay up to 4% of the loan amount in concessions. Conventional limits vary based on down payment.

How to Review Your VA Loan Closing Disclosure

Compare with the Loan Estimate: Significant differences demand an explanation.
Check the VA Funding Fee: Ensure it matches your service status and whether it’s your first or subsequent use.
Identify Non-Allowable Fees: The VA prohibits certain charges to veterans, such as attorney fees or brokerage fees.
Inspect Cash to Close: Confirm it accounts for seller concessions, credits, and earnest money deposits.
Confirm Rate and APR: VA loan rates are competitive; if it’s unexpectedly high, ask your lender why.
Look for Red Flags: Prepayment penalties, balloon payments, or negative amortization typically do not apply to VA loans.
Ask Questions: Contact your lender or a VA-approved housing counselor if anything is unclear.

Real-World Example: Correcting a VA Funding Fee Error

Imagine you’re an active-duty service member using your VA home loan benefit for the first time. Your funding fee should be around 2.15% of the loan amount if you’re not making a down payment. On the CD, the lender accidentally listed 3.3%—the rate for a subsequent use. With a $300,000 loan, this mistake would cost you an extra $3,450. By reviewing Page 2 carefully and catching the error, you could contact your lender and have them correct it before signing, saving thousands of dollars.

Consumer Protections & Legal Requirements

TRID Rules: Lenders must deliver your Closing Disclosure at least three business days before you close. If significant changes occur, a new three-day review may be required.
CFPB Oversight: The Consumer Financial Protection Bureau enforces these regulations. You can file a complaint if you suspect unfair or deceptive practices.
VA Loan Safeguards: The VA prohibits certain fees, ensures you have a fair appraisal, and offers foreclosure avoidance help if you struggle with payments.

After You Receive the Closing Disclosure

Here’s what happens next:

Three-Day Review Period: Use this time to identify and correct errors. Don’t rush.
Address Discrepancies: Contact your lender if fees or loan terms are not what you agreed upon.
Closing Day: You’ll sign final documents, pay closing costs (if needed), and receive the keys to your new home.
Post-Closing: Keep your Closing Disclosure for reference during tax season (some costs may be deductible) or if you refinance later.
Loan Servicing: Your loan may be transferred to another servicer. This does not change your rate or terms, but always confirm new payment instructions in writing.

Frequently Asked Questions

1. What is a Closing Disclosure for a VA loan?

The Closing Disclosure is a five-page form detailing the final terms of your VA mortgage, including your interest rate, loan amount, VA funding fee, and total closing costs. You must receive it at least three business days before closing.

2. How does the VA funding fee appear on the Closing Disclosure?

If you’re paying the VA funding fee upfront, you’ll see it in Section H on Page 2. If it’s financed, it will be added to your loan amount on Page 1.

3. Can closing costs change between the Loan Estimate and Closing Disclosure?

Minor adjustments are common, but large discrepancies (beyond allowable tolerances) could reset the three-day review clock. Always compare both documents.

4. Are there fees VA loan borrowers do not pay?

Yes. The VA forbids certain “non-allowable” fees such as attorney fees or brokerage fees charged directly to the veteran. Verify your lender is following these rules.

5. How do seller concessions work with a VA loan?

The VA allows sellers to pay up to 4% of the loan amount in concessions. These funds can cover closing costs, prepaid expenses, or even the VA funding fee.

6. What happens if I find an error on the Closing Disclosure?

Immediately contact your lender or settlement agent. Small changes can be fixed quickly, but major ones may require issuing a new CD, delaying closing.

7. Can I waive the three-day waiting period?

No. Federal law requires the three-day review to protect you from rushed closings and undisclosed fees.

8. Why is my escrow account required on a VA loan?

Most VA lenders require escrow to ensure property taxes and insurance are paid on time. This safeguard protects both you and the lender.

9. How do I know if my final VA loan terms are fair?

Compare your CD to the Loan Estimate and to typical market rates. Seek advice from a VA-approved housing counselor or real estate attorney if uncertain.

10. What replaced the HUD-1 Settlement Statement?

The Closing Disclosure (and Loan Estimate) replaced the HUD-1 and old Truth-in-Lending forms in 2015, simplifying disclosures into two main documents.

Real-World Success Stories: Veterans Who Used the CD Effectively

Case Study #1: A National Guard member spotted a $2,000 origination fee above the VA’s 1% cap. By questioning it, the lender promptly removed the excess charge.

Case Study #2: A retired Marine noticed her mortgage insurance was mistakenly listed. She pushed back, and the lender corrected the error, reducing her monthly payment by $100.

Next Steps: Closing and Beyond

Once you’ve confirmed all the details in the Closing Disclosure are accurate and comply with VA loan rules, you’ll proceed to closing. Bring valid identification and payment for any remaining “Cash to Close” (if applicable). Don’t feel pressured to sign if you discover discrepancies—you have legal rights to delay closing until the lender provides a corrected document.

After closing, keep your Closing Disclosure safe for tax deductions, potential refunds, and future refinances. If issues arise, consult a VA-approved housing counselor or call the CFPB for guidance.

The Bottom Line

The Closing Disclosure is your last stop before signing off on a VA loan. It encapsulates every fee, term, and condition of your mortgage, ensuring full transparency and compliance with VA rules.

By examining each page closely—and comparing it to your Loan Estimate—you can protect yourself from inaccurate charges, predatory lending practices, and unwelcome surprises.

Take advantage of the mandatory three-day review period to address any inconsistencies.

If you need expert guidance, consult a VA-approved housing counselor or your real estate attorney. Armed with this knowledge, you can approach the closing table prepared, confident, and excited about your new home.