The VA loan is a great opportunity for veterans, offering benefits like low interest rates, no required private mortgage insurance (PMI), and no down payment.
Another lesser-known benefit of VA loans is that there are certain fees a veteran is not permitted to pay at closing. This helps keep closing costs reasonable for veterans and makes sure they’re not offered cheap loans and then charged huge amounts at closing.
For a summary of VA non-allowable fees, watch the video below:
There are, however, some fees that have more detailed restrictions, and other fees that are allowed to be charged. Continue reading to learn more about non-allowable and allowable VA fees in 2019.
VA Non-Allowable Fees
Some fees can be paid by the veteran as long as they fall into a specified category or within a certain amount, while others cannot be paid by veterans at all.
Let’s go over the non-allowable VA fees, which cannot be paid by veterans on VA loans. These include:
VA non-allowable fees are not permitted at any time; however, there are other fees that have specific guidelines about when they are and are not allowed.
VA Allowable Fees with Strict Limitations
Veterans are allowed to pay a 1% origination fee to lenders. (There are certain permitted fees and charges that can be in addition to this fee—but we’ll cover that in the next section.)
The allowable 1% fee is for underwriting, processing, and originating the VA loan, and the VA has certain restrictions regarding the fee.
If the 1% fee is charged as a flat rate fee, lenders have to cover specified costs as part of the flat rate and may not charge them to the veteran outside of the fee, like:
- Fees for locking in your rate
- Prepayment penalties
- Fees for coordinating transactions
- Fees for tax services
- Closing fees
- And more
If it is not charged as a flat rate, the lender can charge itemized fees that equal an amount that is up to 1% of the loan amount. These fees do not have to remain within the same parameters as when the lender charges a flat rate, but they must not exceed 1% of the loan amount.
Talk to your VA lender if you’d like more detail on VA regulations and what you’re being charged.
Itemized Fees That Can Be Charged in Addition to the 1% Fee
So you’re aware when you’re looking at your loan agreement, there are some additional fees that may be charged even outside of the 1% fee. They must, however, fall within certain categories outlined by the VA.
Included in these allowed fees are things like:
- Charges for the VA appraisal
- The VA funding fee
- Credit report fees
- Title insurance
However, in order for a lender to charge these fees, the amount must be considered “reasonable” to be allowed by the VA.
Keep in mind that while lenders can charge you for a number of itemized costs, they cannot charge you for their coordination of these kinds of transactions with third parties.
Lenders are also permitted to charge discount points. Discount points are an agreement between borrower and lender where you pay extra at closing in return for a lower interest rate.
The VA requires that the number of these points be “reasonable.”
So Who Pays VA Non-Allowable Fees?
VA non-allowable fees can be paid for by anyone involved with the VA loan besides the veteran.
This might include:
No one party is required to pay these fees, but there are different circumstances that may make it advantageous for one of these parties to do so. For example:
- The real estate agent may agree to pay these costs in exchange for credit at closing (depending on whether this is legal in your state)
- The seller may want to contribute so you’ll by the home, especially if it’s a buyer’s market
- The lender may negotiate with you to pay certain closing costs in return for a higher rate
To protect veterans from being enticed to get loans they can’t afford by offers of huge seller concessions, the VA has limits for what the seller can pay. They are only permitted to concede up to 4% of the loan amount; anything above 4% is considered excessive.
Though no one party must pay non-allowable fees, borrowers should always ask as part of the negotiations during the homebuying process.