VA non-allowable fees: These are costs buyers don’t have to pay

A VA loan is a home loan option available to eligible active-duty service members, reservists, National Guard personnel, veterans, and qualified surviving spouses. The 0% down payment garners headlines, but less heralded is what the Department of Veterans Affairs does to keep closing costs down. Closing costs are usually 3% – 6% of the loan amount or purchase price, but VA non-allowable fees limit client costs.

What are VA non-allowable fees?

VA non-allowable fees are charges that cannot be paid by the borrower of a VA loan. These costs may be absorbed by the lender or passed on to another party in the transaction, but as a client, you wouldn’t be charged these fees.

What determines your non-allowable fees for a VA loan?

The fees that are allowed to be charged to a borrower for a VA loan fall into two buckets: a flat fee and a list of reasonable costs that are often paid by borrowers in their area.

All lenders can charge a flat fee of 1% that’s intended to cover the direct costs incurred for taking your application, underwriting, and processing your loan. Lenders may commonly refer to this as an origination fee.

The following examples aren’t allowed as itemized costs, but the VA states they are intended to be covered by the flat fee.

• Document preparation
• Attorney fees not related to title work
• Rate lock fee
• Mortgage commitment fees
• Escrow charges
• Tax service fees
• Loan broker fees

We’ll go over the itemized list of charges that are allowed in a minute. But first, let’s touch on who can pay and under what circumstances.

Are VA non-allowable charges paid by the seller?

VA non-allowable charges can’t be paid by the borrower under guidelines. The guidelines don’t say that those same costs can’t be paid by sellers or real estate agents. They can also be waived by the lender.

Costs or throw-ins by the seller are commonly referred to as seller concessions. The VA limits seller concessions in the following categories to no more than 4% of the loan amount:

• Funding fee
• Homeowners insurance
• Prepaid taxes
• Temporary buydowns

Any other concession that the seller wants to pay for isn’t limited, which is a point of differentiation from other loan types and may add to flexibility in negotiations between buyers and sellers.

A note on paying real estate agents

In the past, it’s been common for sellers to pay the compensation of the buyer’s agent. In practice, the seller pays a fee to the listing agent who then splits with the buyer’s agent. However, just because it's been common practice doesn’t mean there’s ever been a hard-and-fast rule. The amount of commissions and who pays has always been negotiable between the parties and their agents.

The November 2024 settlement of the Sitzer-Burnett class-action lawsuit established that sellers aren’t automatically responsible for buyer’s agent commission, directly or indirectly. In this settlement, buyers have to execute a buyer’s agency agreement with any agent who might represent them that will say how much they’ll be paid. Also, sellers can’t post offers of agent compensation with the listing. It can still be negotiated, but it needs to be one-on-one.

A VA policy still in effect prohibits buyers from paying for a buyer’s agent. But a variance to the policy put in place in June 2024 temporarily allows buyers to pay their agent in areas where this is common practice.

List of common VA allowable and non-allowable fees

Which fees are buyers allowed to pay in closing costs and which are non-allowable under guidelines? Let’s dig in.

VA allowable fees

• VA funding fee: the funding fee is paid to the VA to support the costs of the program. Depending on the type of loan you’re getting, the down payment or equity amount, and whether you’re a first-time or subsequent purchaser, the funding fee is anywhere between 0.5% – 3.3%. You may be exempt from this fee if you receive VA disability, have received a Purple Heart and are currently on active duty, or a qualified surviving spouse.
• VA appraisal fee: You’ll need to pay for a VA appraisal to determine the value of the home. You have to pay for the first appraisal, as well as any inspections requested as a result of the appraisal. Subsequent appraisals requested by the lender or seller must be paid for by the requesting party
• Credit report fee: Lenders will need a copy of your credit report.
• Title work and title insurance: A title examination is conducted to make sure that there’s no one with any claims to the property that you’re buying or trying to refinance. The title is updated each time there’s a new loan. Title insurance offers protection against future legitimate claims to the property if anything is missed. It’s required to purchase a policy protecting the lender, but you can also buy an owner’s policy that would give you money to buy a new place if someone had a claim to your home.
• Recording fee: A recording fee is the charge for filing paperwork transferring ownership with your local authorities, often a county clerk.
• Discount points: Also commonly known as mortgage points, you can pay prepaid interest at closing to buy down your rate and have a lower monthly payment for the life of the loan. One point is equal to 1% of the loan amount.
• Hazard insurance: You can prepay hazard insurance premiums for things like earthquake and flood insurance. You may also have to pay a fee to see if you’re in a flood zone.
• Mailing fees for refinancing: If you’re getting a new loan on your existing home, you’re allowed to pay for any items that need to be mailed in the process.
• Escrow fees: You’ll likely need to fund the escrow account at closing, including homeowners insurance and property taxes. But you can’t pay any fees to set up the escrow account itself.
• Survey: If a survey is required to establish your property line, you can pay for this.
• Mortgage Electronic Registration System (MERS) fee: This system tracks the holder of your loan and its servicing rights.
• VA-authorized fees: This is a catchall for anything the VA authorizes in writing in terms of charges.

VA non-allowable fees

• Real estate attorney fees: Attorney fees are not allowed for VA home loans, except to the extent that they’re related to title work. In that case, it would be part of your title charges.
• Application fees: Lenders often charge a separate application fee, but the VA doesn’t allow this.
• Rate lock fees: A rate lock protects you from market movement from the time you lock your rate to when you close your loan. Lenders can’t charge separately for this.
• Department of Housing and Urban Development (HUD) inspections: In cases when special inspections by HUD are required related to new construction, the borrower doesn’t have to pay for these.
• Prepayment penalties: Fees related to paying off your loan early aren’t allowed.

These fees may be contemplated in the 1% flat fee that lenders may charge, but they can’t charge you separately for these items. If you run into any of these fees and don’t get a satisfactory explanation from your lender, reach out to the VA.

The bottom line: Understand your costs as a VA buyer

While lenders may charge a 1% fee to cover the costs, VA non-allowable fees make sure that those who have served our country don't overpay for closing costs related to their loan. A finite number of items are allowed as separate charges that a veteran can pay for. Alternatively, they may be waived by the lender, paid by the seller, or covered by the real estate agent. Feeling ready to get started? Apply online with Rocket Mortgage^®.