What Are VA Non-Allowable Fees & Who Pays Them?
When you take out a home loan, you’re subject to closing costs, which can significantly impact your home-buying budget. However, if you’re purchasing a home using a VA loan, there are rules about allowable and non-allowable fees, which can help lower the costs you’re responsible for.
VA loans were created to help eligible service members, veterans, and their families achieve their dreams of homeownership by making lending criteria more flexible and helping these borrowers save money throughout the process. With a VA loan, there’s no down payment requirement, but you’ll still have to pay several types of closing costs.
However, the VA limits which fees buyers can be held responsible for. These are called non-allowable fees, meaning the lender cannot charge you for them.
Non-allowable fees help keep your VA loan closing costs low and can help you save money when taking out a mortgage. Keep reading to learn more about VA loan non-allowable fees, including what they are and who pays them.
- VA non-allowable fees are mortgage closing costs associated with originating your loan that the lender can’t charge you.
- The seller typically pays non-allowable fees, but they can also be paid by the real estate agent or waived by the lender.
- Lenders can charge a flat fee of 1% for closing costs or itemize their fees.
What Are VA Non-Allowable Fees?
The most significant benefit of VA vs. conventional loans is the fact that you can save thousands of dollars during closing and throughout the life of the loan. VA loan non-allowable fees are fees the lender can’t charge VA borrowers at closing.
VA home loans are backed by the Department of Veterans Affairs (VA) and are designed to make homeownership more affordable for eligible borrowers. While the VA doesn’t provide these loans, they set strict rules for lenders regarding the various fees borrowers are expected to pay at closing.
List of VA Non-Allowable Fees
While there are many fees a lender can charge VA loan borrowers at closing, the VA purposefully limits various fees to ensure these loans are an affordable option for eligible active duty service members, veterans, and their families.
Review this VA non-allowable fees list to help you understand closing costs you’re not responsible for:
- Application fees: Many lenders charge application fees as a non-refundable charge, and the costs vary by lender. Typically, these fees cover the costs of processing and underwriting the loan application. However, when you apply for a VA loan, the lender can’t charge you an application fee.
- Escrow fees: With many types of home loans, you’ll pay an escrow fee as part of the closing costs. These fees go directly to a company or attorney who is responsible for distributing funds to those involved in the transaction. Escrow fees are VA non-allowable fees, meaning if you use a VA loan to purchase a home, you won’t pay for escrow fees.
- Rate lock fees: Some lenders charge rate lock fees for you to lock in your interest rate for a set period of time. These fees vary by lender, but most lenders don’t charge them if your lock is for less than 60 days. VA loan borrowers won’t be subject to these fees. Instead, they can lock their rate in without paying for it, helping them save more over the life of the loan.
- Appraisals and inspections: The VA requires that properties meet minimum property requirements (MPRs) in order to be eligible for a VA loan. You’ll pay for the VA appraisal out of pocket. However, the VA prohibits lenders from charging you for additional appraisals or home inspections.
- Notary costs: Notaries often cost money because they have to act as a witness to the signing of various documents while notarizing them. With most loans, borrowers must pay the notary fees out of pocket, and these loans are non-allowable under the VA loan.
- Lawyer, broker, and agent fees: Many parties are involved in real estate transactions, not just the buyer, seller, and mortgage lender. Luckily, when you take out a VA loan, you’re not responsible for lawyer, broker, or real estate agent fees.
How Do Non-Allowable VA Fees Work?
The VA has guidelines for the types of fees lenders can charge VA loan borrowers. VA non-allowable fee amounts are determined by the following:
- The 1% rule: Lenders may charge a flat fee of 1% for closing costs, which covers expenses to originate and process the loan. If they charge you this flat fee, you’re not responsible for paying any other non-allowable costs.
- Itemized fees: Lenders may also choose not to charge a 1% fee, in which case they can ask for reasonable amounts for different types of fees. In any case, they must adhere to the VA’s guidelines.
Who Pays Non-Allowable Fees for VA Loans?
The seller typically pays non-allowable VA fees as seller concessions — closing costs the seller agrees to pay to make the home purchase more affordable for the buyer. The total amount the seller pays can’t equal more than 4% of the total loan amount.
If the non-allowable fees total up to more than 4% of the total loan amount, your lender may be responsible for paying the non-allowable fees. Additionally, the real estate agent may pick up some of the cost, or the lender will waive various fees like attorney or notary fees.
Of course, this makes buying a home slightly more complicated. If you want the seller to pay the non-allowable fees, you’ll have to negotiate with them since they may be willing to accommodate you, but it means increasing their asking price on the home to cover some of their costs.
What is the 1% fee rule?
As we touched on above, the 1% fee rule is the maximum loan origination fee lenders can charge VA loan borrowers. When you close on a home, you typically have to deal with various fees associated with originating and processing the loan.
The 1% fee rule is a flat fee structure designed to cover the lender’s costs and make it easy for borrowers to understand how much they’ll pay at closing.
Another way to think of this rule is that lenders can’t charge you more than 1% of the loan amount in origination fees. Some fees are only allowable when they’re included in the 1% fee rule, such as:
- Rate lock-in fees
- Document preparation fees
- Escrow fees
- Notary fees
- Application and processing fees
As you can see, some non-allowable VA fees discussed earlier are allowed as long as they adhere to the 1% maximum fee rule for VA loans.
What Are the Allowable VA Loan Fees?
Allowable VA loan fees are costs a lender can charge VA loan borrowers at closing, but they must include the maximum 1% loan fee.
A few of the most common VA allowable fees include the following:
- Appraisal: As we’ve mentioned, additional appraisals and home inspections ordered by the lender are non-allowable fees. However, the VA requires an appraisal to ensure the property meets the minimum property requirements to ensure it’s safe and sanitary. The VA appraisal fees vary by state, so you can talk to your lender to determine how much it’ll cost.
- VA funding fee: The VA funding fee is a one-time payment borrowers must make to support the VA loan program, enabling more eligible borrowers to use their VA loan benefits to avoid a down payment and mortgage insurance while lowering the cost for taxpayers. All borrowers are required to pay the VA funding fee unless they meet certain requirements to have it waived. Additionally, the VA funding fee varies depending on whether you’re a first-time buyer or have used your VA loan benefit in the past. How much you put down, if anything, can also impact how high your funding fee is.
- Credit report fee: The credit report fee is your lender’s charge for pulling your credit report. This fee is typically small because it doesn’t cost lenders too much to order your report.
- Origination fee: The origination fee covers administrative costs, such as underwriting and setting up your loan.
- Homeowners insurance: Most lenders require home insurance to protect their investments. If you pay homeowners insurance through your lender, it’s an allowable fee paid at closing.
- Title insurance: Lenders charge a fee for title insurance, which protects you and the lender against other claims against the property from past liens or unpaid taxes.
How Can You Save on a VA Loan?
VA loans are designed to help eligible borrowers reduce the costs associated with homeownership.
With no down payment requirement and lower closing costs than conventional loans, they make it easier for borrowers to secure financing and purchase a home. However, there are several ways you can reduce your costs over the life of the loan and every month.
Here are a few ways to save on a VA loan:
- Make a down payment: Any time you make a down payment, you effectively reduce your loan amount and the amount of interest charged over the life of the loan.
- Negotiate with the seller: Sellers can pay up to 4% of your total loan amount in closing costs on your behalf, including your VA funding fee. Depending on what makes sense based on your financial situation, you may be able to save on closing costs, but the seller may ask that you pay more for the property to compensate them.
- Find a lender with competitive interest rates: VA loan interest rates are often lower than conventional loan interest rates. However, since rates are determined by the lender and based on various factors like your credit score, you may be able to find a lender with the most competitive rates by doing your research.
Apply for a VA Loan with Griffin Funding
VA non-allowable fees protect eligible veterans, active duty service members, and their families from paying high closing costs without reducing the lender’s ability to provide various services related to originating loans.
Ready to take advantage of your VA loan benefit? Apply online or speak with a Griffin Funding mortgage specialist today by calling 855-698-1230. We can help you understand the closing costs associated with your loan and make the home-buying experience a positive one.
Frequently Asked Questions
What's included in origination and processing fees?
What do you do if a lender tries to have you pay a non-allowable fee?
Do non-allowable fees apply when you refinance a VA loan?
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