VA non-allowable fees are a unique feature of VA loans that protect veteran and active duty homebuyers from paying excessive closing costs.
Basically, the VA has limitations on what borrowers are allowed to pay during the closing process, ensuring VA loan borrowers can secure a home without facing an immense financial burden.
In this article, we’ll explain VA non-allowable fees, including 2024 updates regarding the NAR settlement on buyer commission fees. We’ll also cover VA allowable fees and how they impact the overall sale price of the home.
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2024 VA Loan Non-Allowable Fees
VA non-allowable fees are specific closing costs that VA loan borrowers are not allowed to pay. Instead, these fees must be covered by the seller, lender, or other parties involved in the transaction.
Here is a full list of VA non-allowable fees:
- Loan application fees
- Attorney fees charged by the lender
- Document preparation costs
- Escrow fees
- Prepayment penalties
- Fees for additional VA appraisals requested by the lender or seller for a reconsideration of value
- Fees for a flood zone determination by the lender or appraiser
- Buyer or seller real estate agent commissions (ending August 10th, 2024)*
*Starting in August of 2024, VA loan buyers are now subject to paying the buyer agent fee (if they work with one). We speak more about this in the section below.
How the 2024 NAR Settlement Affects VA Buyers
Starting August 10, 2024, the VA temporarily approved the ability for VA homebuyers to pay buyer real estate agent fees.
Previously, buyer and seller agent commissions were considered non-allowable fees – meaning VA homebuyers could not pay for these costs.
This decision follows a lawsuit against the National Association of Realtors (NAR) for allegedly inflating real estate commissions. In March 2024, NAR settled, agreeing to decouple commissions from home listings and eliminate mandatory commission fees.
Historically, sellers have covered both agents’ commission fees as part of closing costs, typically amounting to 4% to 6% of the home price overall and split evenly between the buyer and seller. Now, buyers are responsible for negotiating fees and scope of work directly with their agent.
VA buyers can still ask home sellers to pay their buyer’s agent fee. This does not count against the VA’s 4% cap on seller concessions, either.
See our full article for more information on this settlement and future updates.
1% VA Loan Origination Fee
The 1% origination fee is a flat fee that VA lenders can charge to cover costs associated with originating, processing, and underwriting the loan. It’s a way for lenders to cover loan origination and processing expenses while keeping costs affordable for VA buyers, which is why it’s sometimes referred to as the “one percent rule.”
So, if you were to purchase a home with a loan worth $300,000, a VA lender might charge you a 1% flat fee of $3,000.
Lenders cannot charge additional processing fees when they charge the complete 1% VA origination fee. However, lenders can choose to charge a lower origination fee and include additional fees within the remaining amount.
For example, if the lender charges a 0.5% origination fee for a $300,000 home purchase ($1,500) and also includes additional fees that amount to $1,500, the total cost to the borrower remains 1% of the loan value ($3,000).
Ultimately, how fees are calculated may vary by lender, but the total charges cannot exceed 1% of the loan amount.
VA Allowable Fees
On top of the 1% origination fee, VA lenders are allowed to charge borrowers fees that the VA considers “reasonable and customary.” These include:
| VA Allowable Fee | What it’s for | Average cost |
| VA Funding Fee | A one-time fee paid to the Department of Veterans Affairs to help fund the VA loan program. | 1.4% to 3.6% of the loan amount, depending on the down payment and whether it’s a first-time or subsequent purchase. Some members are also exempt from the VA funding fee. |
| VA Appraisal Fee | A fee for an appraisal to determine the property’s market value and ensure it meets VA standards. | $625+ |
| Recording Fees | Fees charged by the local government to record the official documents related to the property purchase. | $25 to $250 |
| Credit Report Pull Cost | A fee for obtaining the borrower’s credit report to assess their creditworthiness. | $30 to $50 |
| Prepaid Taxes & Insurance | Upfront payment for property taxes and homeowners insurance, usually required at closing. | Varies widely based on property value and location, typically a few hundred to a few thousand dollars. |
| Title Insurance | Insurance that protects the lender (and optionally the buyer) against losses from title defects or disputes. | $500 to $1,000, depending on the property value. |
Despite the measures the VA takes to keep VA buyers’ closing costs within an affordable range, as you can see, VA allowable closing costs already amount to several thousand at least. When factoring in the buyer’s agent fees that VA buyers are now allowed to pay, you’re likely tacking on another couple thousand dollars.
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Tips to Lower Your VA Loan Closing Costs
Despite the presence of non-allowable fees, veteran and military homebuyers can still find ways to reduce their overall closing costs. Here are some practical tips to help you save.
- Ask the seller to pay: VA loans have seller concession rules, which allow sellers to cover up to 4% of the loan amount in closing costs, including the VA funding fee. Seller concessions are a great way to free up cash for discount points or to cover taxes and insurance.
- Lender pays closing costs: In exchange for a higher interest rate, your lender may cover closing costs. This option means savings at closing but higher monthly payments and interest charges over the loan term.
- Purchase discount points: Buying discount points lowers the loan’s interest rate. However, each point costs 1% of the total home loan, so this option requires a larger payment at the beginning of the loan term and may not be viable for all borrowers.
- Check disability status: Veterans with a service-related disability may be exempt from paying the VA funding fee. Those receiving service-connected disability income are likely eligible.
- Find closing cost assistance programs: Contact local housing agencies for help discovering homebuying assistance programs.
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