VA Non-Allowable Fees: What Buyers Don’t Have To Pay
Sarah Sharkey3-minute read
December 02, 2022
When you’re buying a home, closing costs can add up quickly. But if you’re purchasing a home through the VA loan, there are rules about which fees a lender can charge you. Luckily, there are many VA non-allowable fees that will help you keep your closing costs under control.
Here’s what you need to know about these fees if you plan to purchase your home with a VA loan.
What Are VA Non-Allowable Fees?
VA loans are backed by the U.S. Department of Veterans Affairs. The program is committed to providing an affordable home buying experience for veterans. With that, it’s not surprising that the VA closely monitors what fees veterans have to pay at closing.
VA non-allowable fees are costs that the department has prohibited lenders from charging borrowers in the closing process. Borrowers using a VA loan will not encounter any VA non-allowables at closing.
What Determines Your Non-Allowable Fees For A VA Loan?
When you close with most home loans, the list of fees is pretty robust, while the VA loan allows lenders to charge a 1% mortgage origination fee.
The flat fee is intended to cover the lender’s costs. A few of these costs include the lender escrow fees, tax service fees, document preparation fees, and loan application fees.
Additionally, this 1% flat fee allows borrowers to easily determine what amount of fees they’ll owe at closing. You are less likely to be surprised by a fee since all of the costs are wrapped up in this 1% cost.
Are VA Non-Allowable Loan Fees Paid By The Seller?
The VA loan has strict requirements for what fees the buyer can pay. If an expense falls into the category of VA non-allowable fees, another party will need to cover the cost. In some cases, the VA loan fees are paid by the seller. In others, the lender or real estate agent will pick up the tab for a particular fee.
Keep in mind that if VA non-allowable fees are paid by the seller, the costs may be factored into the deal in another way. A seller might tack on the costs they are forced to pay out of pocket onto the sale price of the home.
List Of Common VA Allowable And Non-Allowable Fees
So, what fees will you need to be aware of as a VA buyer? Here’s a list of VA allowable and non-allowable fees.
VA Allowable Fees
Let’s start with the VA allowables buyers may pay as part of their closing costs:
- VA funding fee: This one-time fee is paid directly to the Department of Veterans Affairs to support the VA home loan program.
- VA appraisal fee: You’ll need to pay for a VA appraisal to determine the value of the home.
- Credit report fee: Lenders will need a copy of your credit report. This service should cost less than $50.
- Origination fee: A lender may charge a flat fee of 1% of the loan amount to cover their costs. Or they may break up the allowable fees into an itemized list.
- Title insurance: Title insurance is designed to protect the lender and buyer in case the property has claims against it. These claims might include outstanding liens or back taxes.
- Recording fee: A recording fee covers the cost of transferring ownership of the property at the appropriate government office.
- Any discount points you use: You can pay for reasonable discount points when using a VA loan.
- Flood zone determination fee: You can pay a third party to determine whether a property is in a flood zone.
- Mailing fees for refinancing: If you’re refinancing, you can pay for mailing charges associated with any necessary paperwork that needs to be mailed.
If you encounter a fee from your lender that isn’t allowed, then contact the Department of Veterans Affairs for assistance.
VA Non-Allowable Loan Fees
Here are the VA non-allowable fees that you need to consider.
- Real estate attorney fees: Attorney fees are not allowed for VA home loans.
- Real estate broker fees: You cannot pay for real estate broker fees when buying a home with a VA loan.
- Agent or REALTOR® fees: VA borrowers cannot pay real estate agent fees. In many cases, these fees will be paid by the seller.
- Application fees: The lender cannot charge you an application fee.
- Escrow fees: You’ll likely need to fund the escrow account at closing. But you can’t pay any fees to set up the escrow.
- Rate lock fees: Fees to lock in an interest rate are prohibited.
- Appraisals or inspections ordered by the lender: Although you can pay for a VA appraisal, you cannot pay for additional appraisals ordered by the lender.
If you run into any of these fees, reach out to the VA.
The Bottom Line
The purpose of VA non-allowables is to protect veterans from paying too many fees. The 1% origination fee cap provides the lender with the funds they need to run their business profitably. But the lack of additional closing costs allows VA borrowers to move forward with closing confidently.
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