You put in the time for our country. Now, you’re likely thinking about using a major benefit: your VA home loan. As you get closer to the loan closing, you start hearing about all these different fees and costs. Figuring out the exact amount you owe can make anyone’s head spin.
We’ll cover all the important rules about Some charges are simply off-limits for VA home loans. and how we design each one to stand guard for you. These guidelines from the Department of Veterans Affairs are a direct effort to lower the financial barrier to homeownership. They specifically benefit every qualified service member and veteran, making property acquisition more attainable. Knowing which VA fees lenders can’t charge you makes your home buying process much easier.
Let’s go over the main points of What fees are veterans excused from paying on their VA home loan? You’ll feel ready to sign with a calm, clear head. These safeguards make getting a loan much easier on a veteran’s wallet. We’ll show you exactly which charges are fair to pay and which ones you can totally skip.
Your quick roadmap to everything within these pages:
- You might wonder: what VA loan fees are off-limits for borrowers?
- We’ll explain the lender’s 1% rule.
- We’re taking a close look at VA home loan fees you won’t pay.
- Who ultimately bears the cost of these ineligible expenses?
- Smart Ways to Lower Your VA Loan Costs
- Conclusion
What Exactly Are VA Non-Allowable Fees?
So, what does this term even mean? A VA non-allowable fee is a closing cost that the Department of Veterans Affairs says you, the veteran, are not permitted to pay. Think of it as a financial shield created specifically for veterans using their hard-earned home loan benefit.
This rule helps lower the financial hurdles of buying a home with VA loans. The main goal is to reduce your out-of-pocket expenses when you’re purchasing or refinancing. This is one of the biggest advantages of using your VA loan benefit over other types of mortgages.
These protections are a core part of the VA loan program’s mission since its inception. By limiting the fees a lender can charge a veteran, the program stays true to its purpose of making homeownership accessible. This makes the VA loan a powerful tool for building personal wealth and stability after service.
Understand the lender’s 1 percent rule and how it applies.
Your loan officer could mention a one percent charge. This is a key guideline the Veterans Affairs has put in place. Lenders can add a flat fee. This charge won’t go over one percent of the loan’s full value and helps cover their running costs.
This single fee, often called an origination fee, is meant to cover the lender’s costs for services. Things like processing your loan application, underwriting, and getting all the fees documented are all included. This simplifies the costs on the lender’s side and gives the borrower a clear picture of the primary lender charge.
If your lender asks for that one percent flat fee, they can’t then load on a bunch of other individual charges. The VA considers any additional charges part of what it costs a lender to operate. That 1 percent fee already covers these business expenses. It’s an all-in-one charge for the lender’s work on your VA loan.
Which expenses fall under the 1 percent guideline?
That 1% origination fee covers a bunch of stuff; lenders can’t bill you for those separate costs. These itemized fees become VA non-allowable at that point. The lender must absorb these expenses as part of their cost of doing business.
Understanding what this percent limit covers helps you review your closing documents effectively. It prevents lenders from “double-dipping” on charges. The goal is transparency and fairness for the veteran.
- Loan application or processing fees.
- Fees from a mortgage broker if one is involved.
- You pay a fee to hold your interest rate.
- Costs associated with fees document preparation.
- Any lender-mandated appraisal costs, separate from the official VA appraisal.
- Lender inspection fees for things like construction loans.
- Postage, courier, and other mailing costs.
- Escrow or notary fees charged by the lender.
- Loan closing or settlement fees charged by the lender’s office.
- Fees for tax service.
- Trustee fees for handling documents.
Let’s use an easy example to illustrate this. Imagine you’re approved for a $300,000 VA home loan. Should your lender collect a flat 1% fee, the highest amount they can ask for their help is $3,000. Any of the fees in the list above could not be added on top of that amount.
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A lender might decide to skip that standard 1% fee. Instead, they just bill you for their real expenses. However, even then, the list of VA non-allowable fees still applies. The lender cannot charge for things the VA has specifically prohibited, regardless of how they structure their own compensation.
A Clear Look at Non-Allowable Fees for VA Home Loans
It helps to see a direct comparison of what costs you might see and who is expected to pay them. The fees you are allowed to pay, or VA allowable fees, can depend on a few things. These include your specific lender and the type of VA loan you are getting.
Remember, this is a general guide, and you should always look at your official Loan Estimate. This form from your lender lists all the expected closing fees. This document is your roadmap to understanding what you will need to pay at closing.
| Expect to see these common charges. | Charges lenders typically aren’t allowed to add. |
|---|---|
| You’ll usually pay a VA funding fee, but some people get to skip it. | Lenders sometimes ask for a payment just to review your loan application. |
| You’ll pay a fee for the VA appraisal. It’s simply the cost to have a qualified professional officially check how much the house is truly worth. | The lender’s own lawyers send you a bill for their services. |
| You’ll find a small cost associated with pulling your credit report. | Fixing your interest rate comes with an associated cost. |
| A small fee helps us get your loan ready, and it won’t be more than one percent. | The bank pays its team to double-check every property valuation. |
| Title insurance & examination | The lender will pick up the tab for escrow or notary services. |
| These are the costs to officially file your documents. | It’s an early payoff fee. That’s simply what a prepayment penalty means. |
| Spend a little upfront to get a smaller interest rate. | Lenders often include a small charge to cover the paperwork and setup when you get a loan. This helps them manage the administrative work of getting everything ready. |
| This is the regular fee for your property’s coverage against specific perils like fire or harsh weather. | That’s a charge to cover the time spent getting all your paperwork in order. |
| A property survey comes with a charge. This is the fee. | These are the charges for getting your tax paperwork prepared and filed accurately. |
You could come across some VA-approved costs you haven’t seen before. The VA funding fee is a one-time cost paid to the VA that helps keep the loan program running for future generations of veterans. However, many veterans with a service-connected disability rating are exempt from paying this VA funding fee.
Discount points are another optional fee you can choose to pay at loan closing. You would pay them to get a lower interest rate for the entire life of the loan. This can save you a significant amount of money in interest payments over time.
The VA appraisal fee covers the cost of the independent appraiser who assesses the property’s value and condition. The credit report fee covers the lender’s cost to pull your credit history. These are considered reasonable and customary costs that the veteran can pay.
Who Actually Pays for These Non-Allowable Fees?
This is probably the first question that popped into your head. If you are not allowed to pay for a certain fee, who does? You definitely do not want any surprises right before you get your keys to your new home.
Thankfully, you have a few options. These VA non-allowable fees must be paid by someone other than you, the veteran buyer. Most often, they get covered by another party involved in the transaction.
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For example, the seller can agree to pay them as part of the negotiation. This is a very common strategy in real estate transactions involving VA loans. A motivated seller will often help cover these costs to make the deal happen smoothly and on time.
Sometimes, the real estate agent might cover a fee out of their commission. In other cases, the mortgage lender might choose to pay for it themselves with a lender credit. It all comes down to what is negotiated for your specific home purchase.
What About Seller Concessions?
Let’s talk more about getting the seller to help you pay closing costs. With a VA loan, the seller is allowed to pay for all of your mortgage-related closing fees. They are also allowed to contribute up to 4% of the home price in what are called seller concessions.
What are concessions? They are costs that are not direct fees from the lender but are still part of the transaction. For example, a seller could use concessions to pay for your property taxes for the year, homeowners insurance premiums, or even pay off some of your debt to help you qualify for the loan.
TRENDING: See Today’s VA Loan Rates
This 4 percent rule is a huge benefit for military homebuyers. It can drastically reduce how much cash you need to bring to the closing table. You just have to make sure your real estate agent negotiates it effectively into the purchase contract for you.
The Special Case of Termite Inspections
For a long time, there was a rule that almost all veterans using a VA loan could not pay for a termite inspection. This was one of the most well-known VA non-allowable fees. But that rule has changed.
The VA shook up these rules back in June 2022. Now, veterans are allowed to pay for a wood-destroying pest inspection report if one is required for the loan. This is a big change from how things used to be.
This change gives you more flexibility, especially in a competitive housing market. Before, you had to ask the seller to pay, which could make your offer less attractive to them. Now, you can offer to pay for it yourself, which could help your offer stand out from others.
Smart Ways to Lower Your VA Loan Costs
Just because some fees are VA allowable doesn’t mean you can’t reduce them. Your goal is to keep as much money in your pocket as possible. There are some great strategies to lower your overall closing fees.
First, always talk to multiple lenders. Shopping around allows you to compare origination fees and interest rates. Even a small reduction in the origination fee can save you hundreds or even thousands of dollars.
Second, as we mentioned, use seller concessions to your full advantage. A good real estate agent who understands the nuances of the VA loan program will know how to negotiate these for you. This is probably the most effective way to lower your closing costs, sometimes even to zero.
Another option is to see if any costs can be rolled into your loan amount. The VA funding is one cost that can often be financed into the total loan. This means you pay less cash up front, but you will pay interest on that amount over the life of the loan.
Finally, always check if you are exempt from the VA funding fee. Veterans receiving VA disability compensation do not have to pay it. This is a major savings that you do not want to miss if you qualify, so confirm your status with your lender.
Conclusion
Buying a home is a big move, and the costs can feel confusing. But the rules on non-allowable fees for VA Home Loans are on your side. They are specifically there to protect your finances and honor your service as a valued service member.
By knowing which fees you can’t be charged and how to negotiate the ones you can, you take control of the process. Always review your Loan Estimate from your lender and never be afraid to ask questions about any fees, including things like tax service fees or attorney fees. Knowing what constitutes a va non-allowable fee can save you a lot of money.
This is your benefit, and understanding the guidelines around non-allowable fees for VA Home Loans will help you use it with confidence. Your path to homeownership should be rewarding, not weighed down by an unexpected financial burden. This knowledge empowers you to have a successful and affordable loan closing experience.
