What You Need to Know About VA Non Allowable Fees

By Craig Donofrio

Posted on June 9th, 2022

holding house

Because VA loans are designed to assist military families, they have special requirements and fee restrictions.

VA loans are unique for a number of reasons. A VA loan:

  • Is only available to current or former military veterans and family members.
  • Limits the amount of money a veteran can be charged for closing costs.
  • Defines which types of real estate transaction fees are allowable and which are non-allowable.
  • Allows the seller to contribute closing cost assistance, but caps the amount at 4% of the purchase price.

Here’s what you need to know about allowable and non-allowable VA loan fees.

Allowable VA Loan Fees:

Laws allow a VA buyer to pay the following fees:

Fee type
What it covers
VA Appraisal fee
The VA appraiser's cost to determine the value of the property
Credit report fee
The cost of obtaining the buyer's credit report
Title insurance
Protects against possible, future legal expenses related to the title
Title search fee
The cost to make sure a title is free and clear
Recording fee
The cost of recording the house deed
Survey fee
The cost of a surveyor to determine property boundaries
Flood zone determination
The cost to determine whether a home is in a special flood zone hazard area
Hazard insurance
Insurance for natural hazards like floods
VA funding fee
A fee paid to the help fund the VA. Costs run 1.4 - 2.3% of the loan
Prepaid items
Things like prorated taxes and assessments
Special mailing fees
Mailing costs, only applicable to VA refinancing loans
Special authorization fees
Additional fees may be approved by the VA if the fee is customarily paid by the borrower in the area
Discount points
Costs associated with paying to lower the interest rate
Flat 1% origination fee
All costs required for originating and processing a loan. If a lender charges a 1% flat fee, it can't charge for other overhead items

Non-Allowable VA Loan Fees

Common fees that a VA buyer cannot pay include:

Fee type
What it covers
Attorney's fee
Review of home sale paperwork ordered by the lender
Agent or broker commission
The cost that real estate agents charge to do business. Traditional agents charge 2.5-3% of the loan, for a total of 5-6%
Rate lock fees
Fee for of "locking in" an interest rate
Lender inspections or appraisals
The cost of a lender's home inspection or home appraisal. The buyer can only pay for the VA's inspection and appraisal.
Escrow fees
Charges associated with setting up escrow (not the funding of things like taxes)
Flat fees costs higher than 1%
The Lender can't charge more than 1% of the loan for a flat fee origination charge

Pros and Cons of VA Loans for Sellers

For most homeowners, selling to a VA buyer is no more difficult than selling to any other type of buyer, even though the VA is more stringent in terms of appraisals and property condition.

However, if your home is in need of repairs or is considered a “fixer-upper,” a VA buyer will not usually be your best bet because the loan will either be denied or you will need to make repairs.

Selling to a VA Loan Buyer

VA loans are designed to allow military families the opportunity to purchase a home with a minimal amount of up-front cash.

To make sure sellers don’t get the short end of the stick, the VA limits how much sellers can contribute towards covering non-allowable VA fees at 4%. The VA also allows lenders to use credits and agents to use fee adjustments to cover costs.

When it’s time to sell, you need a great agent to make sure you're getting a good deal. But we don't think you should pay the 2.5-3% fee that a traditional seller's agent charges. That's why we've partnered with Clever Real Estate.

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Posted in Mortgage, Selling a House