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.