VA Non-Allowable Fees: What VA Homebuyers Don’t Pay
The U.S. Department of Veterans Affairs (VA) backs no-down-payment home loans for eligible military borrowers at competitive interest rates. To keep veterans from being overcharged for closing costs, the program sets VA non-allowable fee rules that limit the type and amount of fees that VA borrowers can pay.
What are 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, which means VA borrowers may not pay many of the fees common with conventional loans.
Here’s a list of the VA fees a borrower cannot pay:
- Attorney fees
- Real estate agent fees
- Prepayment penalties
- Inspection fees charged by the 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
The 1% maximum VA loan origination fee rule
Lenders can’t charge VA borrowers an origination fee equal to more than 1% of the loan amount. The following is a list of fees that are only allowable if they are included in the 1% flat charge maximum:
- Settlement fees
- Document preparation fees
- Rate lock-in 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 non-allowable fees?
In most cases, the seller is required to pay any non-allowable fees in the form of a “seller concession”; the total concession can’t equal more than 4% of the loan amount. In some cases, a lender may be required to pay a VA non-allowable fee if it wasn’t properly disclosed at the time of application.
What are allowable VA fees?
VA lenders are allowed to charge several VA loan fees when finalizing a home loan, including the maximum 1% loan origination fee mentioned above.
Lenders are also allowed to charge “reasonable and customary” fees for certain third-party services, which just means that lenders 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, and may 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.|
|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.|
|Title insurance||The VA requires title insurance to protect the agency from past title issues, such as liens or unpaid taxes.|
VA funding fee
The VA funding fee is an upfront charge paid by VA borrowers to offset the cost of the loan program to taxpayers. The amount you’ll pay will depend on your down payment and whether you’ve used your VA home loan benefits before. The VA funding fee cost is usually rolled into your loan amount, although you can pay cash for it or ask the seller to pay for it.
The chart below shows how much the amount varies for a purchase loan:
|Down payment||First-time user funding fee||Subsequent use funding fee|
|Less than 5%||2.30%||3.60%|
|5% or more||1.65%||1.65%|
|10% or more||1.40%||1.40%|
How to lower how much you pay for VA allowable fees
Ask the seller to pay. The seller can pay closing costs equal to 4% of your loan amount, including your VA funding fee. If you want a lower rate, you can also use the seller concession to pay for discount points or prepaid taxes and insurance.
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-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 exempt from paying the funding fee. 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.