VA Non-allowable Fees: What VA Homebuyers Don’t Pay
The U.S. Department of Veterans Affairs (VA) backs home loans for eligible military borrowers at competitive interest rates. To keep veterans from being overcharged for closing costs, the program has rules about VA non-allowable fees, which limit the type and amount of fees that VA borrowers pay.
What are VA non-allowable fees?
There are several VA non-allowable fees, which are fees that lenders cannot charge VA loan borrowers. Many of these fees are common with conventional loans.
VA non-allowable fees include:
- Attorney fees
- Real estate agent fees
- Prepayment penalties
- Inspection fees charged by the U.S. Department of Housing and Urban Development (HUD) or the Federal Housing Administration (FHA)
- An appraisal ordered by a lender or seller to dispute a low VA appraised value
- An appraisal requested by parties other than the lender or veteran
What are VA allowable fees?
The VA allows buyers to pay three categories of fees:
1. Approved itemized fees and charges.
The VA has a list of costs it allows, as long as the amount charged is “reasonable and customary,” according to the agency.
2. Lender fees up to 1% of the loan amount.
This category can include an origination fee, as well as other fees listed below. The VA places a cap on these fees to help keep homeownership affordable.
3. Discount points.
Also known as mortgage points, these are upfront fees you pay to lower your VA loan interest rate. You’ll typically pay 1% of your loan amount per point.
A buyer is allowed to pay the following fees in the first two categories:
- Approved itemized fees and charges
- VA funding fee
- VA appraiser and compliance inspector fees
- Recording fees
- Credit report fees
- Prepaid items (taxes, assessments and insurance costs)
- Hazard insurance
- Flood zone determination fee
- Survey fee
- Title examination and title insurance fees
- Additional fees authorized by the VA upon written request
- Lender fees
- Settlement fees
- Document preparation fees
- Interest rate lock costs
- Postage and other mailing charges
- Escrow fees
- Notary fees
- Loan application or processing fees
- Tax service fees
- Additional fees for loan brokers or other third parties
Who pays VA nonallowable fees?
In most cases, the seller is required to pay any non-allowable fees in the form of a seller concession. Seller concessions are when a seller agrees to pay a portion of the buyer’s costs. Often, sellers agree to concessions to sweeten the deal and incentivize buyers. The total concession can’t equal more than 4% of the loan amount.
However, the VA doesn’t count “normal” (standard) discount points and VA closing costs toward that 4% limit. What’s considered “normal” can change both with market conditions and the norms of your local real estate market.
Below, we’ve listed some costs that typically count toward the total concessions in a VA loan transaction. If you have questions about whether a specific fee counts, reach out to your loan officer.
| Fees that count toward total VA seller concessions | Fees that don't count toward total VA seller concession |
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How to save on your VA allowable fees
- Ask the seller to pay. As we’ve covered, the seller can pay closing costs equal to 4% of your loan amount, including your VA funding fee. If you want a lower interest rate, you can also seek a seller concession to pay for discount points.
- Consider a no-cost mortgage. Your lender may offer to pay your closing costs in exchange for a higher interest rate, which is also known as a “no-closing-cost mortgage.” Although you’ll save out of pocket at closing, you’ll have a higher payment and pay more in interest charges over the life of the loan.
- Make a down payment. A higher down payment can reduce your VA funding fee — and the lower loan amount will reduce your total closing costs, since they’re based on a percentage of the amount you borrow.
- Check on your disability status. Veterans with a service-related disability may be eligible for a funding fee exemption or refund. If you’re receiving VA disability income, you’re probably eligible for the waiver.
- Find out about closing cost assistance programs. Check your local housing agency to learn about homebuying assistance programs available in your area. Income limits may apply.