Fees You May and May Not Pay With VA Loans
VA borrowers can expect to be charged certain fees when they use the VA home loan program. While some fees are allowed, other fees are strictly prohibited. So before you get deep into the VA loan process, it's important for you to know the difference.
What Fees Does the VA Allow?
A common misnomer with VA loans is to assume that “zero down payment” means no cash out of pocket. Even though your VA loan may not require a down payment, you may still have some fees to pay.
While there are limits on what fees a VA borrower may pay, the VA does allow these to be charged:
- VA Funding Fee
- Credit report
- VA appraisal
- VA compliance inspection
- Maximum one percent origination fee
- Reasonable discount points
- Prepaid items (escrow)
- Assessments and insurance
- Hazard insurance
- Flood zone determination
- Survey fee
- Title examination and insurance
- Recording fee, mailing, and/or wire fees
- Mortgage Electronic Registration System (MERS)
- Certain other fees allowed by the VA
It’s also good to know which of these fees can be rolled into the loan and which need to be paid at closing:
- Purchase loans — only the VA Funding Fee can be rolled into the loan.
- Cash-out refinancing loans — allowable fees and charges, as well as discount points, may be paid from cash out, but only the VA Funding Fee (and the cost of energy improvements) can increase the loan amount.
- Interest Rate Reduction Refinance loans (IRRRL or streamline refinance) — allowable fees and charges, along with up to 2 percent discount points, may be rolled into the loan. The borrower may pay additional points with cash.
Note: The buyer can also try to negotiate seller-paid fees.
Fees the VA Does Not Allow
There are certain fees you are not required to pay with VA loans. The lender’s max one-percent flat fee is intended to cover all fees and costs that are not itemized on your loan. You should never be charged for the following fees:
- Private Mortgage Insurance (PMI)
- Attorney’s fees for the seller or lender
- Real estate commissions
- Buyer’s broker fees
- Prepayment penalties
- Inspection costs on HUD-built homes
- Lien penalties on homes for sale
Approved lenders must comply with these limitations on VA borrower fees. Certain allowed fees, caps on fees, and strictly forbidden fees help make the VA Home Loan Guaranty Program unique.