VA Loan Non-Allowable Fees Explained
The Department of Veterans Affairs regulates Veterans' fees to ensure they are not burdened with excessive costs when obtaining a VA home loan.
A VA loan is any loan backed by the Department of Veterans Affairs designed to help eligible Veterans, active-duty service members, and surviving spouses purchase a home.
What are VA non-allowable fees?
VA non-allowable fees are closing costs that the Veteran borrower cannot pay when obtaining a VA home loan.
Fees that Veteran borrowers never have to pay to include:
| Non-allowable Fees | What They Mean |
|---|---|
| Attorney’s Fees | Real estate attorney services, typically employed by the lender. |
| Brokerage Fees/Commissions | Fees for real estate broker services. |
| Appraisals & Inspections | Veterans can’t pay for appraisals requested by the lender or seller for a Reconsideration of Value. Veterans also can’t pay for appraisals requested by a third party (anyone other than the lender or seller). |
| Rate Lock | Fees to lock in the loan interest rate. |
| Loan Application | The lender cannot charge the Veteran an application fee for a VA loan. |
Why the VA Regulates VA Loan Fees
The Department of Veterans Affairs regulates Veterans' fees to ensure they are not burdened with excessive costs when obtaining a VA home loan. For borrowers, this rule:
- Protects Veterans from predatory lending practices
- Ensures that borrowers clearly understand the costs associated with their loan
- Helps Veterans obtain affordable homeownership
What determines the fees VA Buyers do pay?
Aside from non-allowable fees, the fees VA buyers do pay depend on several factors, including:
- The type of VA loan
- The loan amount
- The borrower's creditworthiness
- The lender's fees.
Overall, the VA permits VA-eligible borrowers to pay a maximum of reasonable and customary amounts for itemized fees and charges, plus a 1% flat fee charge, plus reasonable discount points.
The 1% Maximum Origination Fee
Lenders can charge a maximum of 1% of the loan's value worth of fees to VA buyers. Many lenders apply a flat fee at closing instead of itemizing the cost of each service. This flat charge is meant to cover the lender's services that aren't reimbursable as "itemized fees and charges" and prevents lenders from charging buyers for items the VA considers overhead.
To summarize, if the lender charges a flat fee instead of itemizing closing cost fees, the total must equal less than 1% of the loan's value and be considered "allowable" by VA standards.
VA Allowable Fees Explained
The term “VA Allowable Fees” refers to VA loan-related fees that borrowers could be liable to pay, in contrast to the non-allowable fees referenced above.
VA loan lenders must strictly abide by the limitations defined by the VA. Lenders also must limit the amount paid to the actual dollar cost of the charge, for example, when outsourcing services to a third party, such as using an agency to run a credit check.
Whether the lender rolls all of your charges into a flat fee or itemizes them, here are some standard fees VA borrowers may encounter:
| Allowable Fees | What They Mean |
|---|---|
| VA Funding Fee | A one-time charge to the VA to support the loan program and reduce taxpayer burden. |
| Appraisals & Inspections | These fees cover VA home appraisals and inspections, including Reconsiderations of Value. |
| Credit Report | Veterans are allowed to cover credit report fees, though they should not exceed $50. |
| Prepaid Costs | These fees include initial deposits for taxes and insurance. |
| Homeowner’s Insurance | The cost of insuring your home from damage, also referred to as “Hazard Insurance.” |
| Title Examination and Title Insurance | A title examination investigates a home's title's history. Title insurance ensures Veterans aren’t liable for pre-existing debts. |
| Recording Fees | Related to taxes and registration of title ownership. |
Though not technically a fee, discount points are also typically paid at closing and are a payment designed to lower the VA interest rate for the life of your loan.
Are Fees Refundable?
In some cases, VA loans are refundable. For example, if the borrower pays for an appraisal and the loan does not close, the lender may be required to refund the appraisal fee.
Veterans awarded VA disability compensation also may be eligible for a VA funding fee refund.
Other fees, such as title fees and recording fees, are typically non-refundable. If the loan doesn’t close for any reason, and the lender has already collected the 1% flat fee, they must refund the buyer. Out-of-pocket expenses for allowed itemized fees and charges do not get refunded.