VA Non-Allowable Fees: What Homebuyers Aren’t Responsible for Paying
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The U.S. Department of Veterans Affairs (VA) insures home loans that provide eligible military borrowers with a range of benefits, including a 0% down payment requirement and competitive mortgage rates. The program also limits the fees lenders can charge, and enforces VA non-allowable fees that borrowers don’t have to pay.
What are the VA allowable fees?
VA lenders are allowed to charge several VA loan fees when finalizing a home loan, including a maximum 1% loan origination fee, which covers the cost of processing, underwriting and originating the loan.
Lenders are also allowed to charge fees for certain third-party services, but those fees must be “reasonable and customary,” which just means they can’t steer you into a higher-cost loan that doesn’t suit your needs.
Let’s take a look at the most common VA loan fees:
|VA fee||What it’s for|
|Appraisal fee||To determine the home’s value. VA appraisal fees vary by state, but can exceed $600 in some areas.|
|Credit report fee||The lender can charge you for a copy of your credit report, but it shouldn’t exceed $50.|
|Flood zone determination fee||The cost to figure out whether your home is in a flood zone.|
|Homeowners insurance||The cost to insure your home from damage.|
|Mailing fees||Specific to VA refinances, these fees cover express mail or FedEx mail services.|
|MERS tracking fee||A one-time fee to access the Mortgage Electronic Registration System (MERS) and track who has a beneficial interest in your loan and its servicing.|
|Prepaid fees||These fees include property taxes and other costs that may be owed for the year.|
|Recording fees||The cost to record your mortgage with your local government.|
|Title search fees||The cost to ensure no liens or judgments are currently recorded on the property’s title.|
VA funding fee
You’ll also pay a VA funding fee upfront, which offsets the cost of the VA loan program to taxpayers.
This mandatory fee goes directly to the VA and costs 2.30% of the loan amount for a majority of first-time military borrowers, though there are some exceptions where you might need to pay more or less based on several factors.
What are the VA non-allowable fees?
The VA places limits on VA loan fees to help keep homeownership affordable for eligible borrowers. There are also several VA non-allowable fees, meaning the VA doesn’t allow lenders to charge you many of the costs that are common with conventional loans.
Here’s a list of the VA fees a borrower cannot pay outside of the 1% origination fee:
- Application fees
- Home appraisals ordered by the lender
- Home inspections ordered by the lender
- Document preparation fees
- Attorney fees
- Mortgage rate lock fees
- Postage fees
- Escrow fees
- Notary fees
- Mortgage broker fees
- Real estate agent fees
- Prepayment penalties
- Property tax service fees
- Settlement fees
3 ways to lower your VA loan fees
- Negotiate with the seller. If you’d prefer to keep more money in your pocket, try negotiating with the seller to pay some or all of your closing costs. The VA limits seller-paid costs to 4% of the loan amount, and those covered costs can’t include lender fees. Instead, the seller may pay the VA funding fee, prepaid property taxes and insurance, discount points and any judgments or credit balances that may prevent you from qualifying for your loan.
- Apply for homebuyer assistance. Cheek with your local housing agency to learn of any homebuying assistance programs for which you may qualify. For example, Virginia offers a grant program to VA borrowers that helps cover closing costs.
- Make a down payment. Although there’s no down payment requirement, putting some money down can help lower your VA loan fees. For example, making a 5% down payment can drop your VA funding fee from 2.30% to 1.65%.