Non-Allowable Fees for VA Home Loans

To protect Veterans from excessive closing costs, the VA maintains a list of fees that lenders are prohibited from charging borrowers at closing, known as “non-allowable fees.” Part of determining which expenses a VA borrower can and cannot pay depends on how the mortgage lender structures the loan.

VA 1 Percent Rule

The 1 percent rule is a VA guideline that caps lender charges for origination, processing and underwriting the loan at 1% of the total loan amount. If the lender is charging the 1 percent fee, they are not allowed to tack on additional charges for things the VA considers overhead.

The purpose of the one percent rule is to protect Veterans from excessive fees and ensure the cost of obtaining a VA loan remains affordable. It sets a clear limit on the amount that lenders and service providers can charge Veterans when closing on their loan.

If your lender is charging the flat fee, the following are non-allowable fees you cannot be required to pay at closing:

• Loan application or processing fees
• Broker or trustee fees
• Interest rate lock-in fees
• Document preparation fees
• Lender appraisals
• Lender inspections (except for VA construction loans)
• Postage costs
• Photographs
• Escrow or notary fees
• Tax service fees
• Loan closing or settlement fees

For example, if a Veteran is obtaining a VA loan of $200,000, the maximum amount the lender can charge at closing would be $2,000 (1% of $200,000). Any lender fees that exceed this one percent limit would need to be paid by the lender or the seller rather than the Veteran.

It's worth noting, however, that the 1% cap only applies to lender-controlled fees. Many VA loan borrowers will still encounter other allowable closing costs that fall outside the lender's 1% and are paid directly by the buyer at closing.

How VA Loan Fees are Decided

The fees VA buyers are allowed to pay can fluctuate and depend on several factors, including:

• Type of VA loan
• Loan amount
• Borrower's credit
• Lender fees

It's important to note that while the VA sets guidelines for allowable fees, lenders can still have their own fee structures within those guidelines. Borrowers should carefully review the Loan Estimate (LE) provided by the lender, which outlines the estimated fees associated with the loan.

When reviewing your LE, focus on Sections A–D, as those are the lender-controlled fees your loan officer can discuss with you directly. If any fees seem excessive or questionable, borrowers can seek clarification from their lender or consult with a VA representative for further guidance.

How to Lower VA Allowable Fees

Lowering the amount a borrower pays in allowable fees for a VA loan is an important aspect of making homeownership more affordable. Here are some strategies to consider:

1. Negotiate fees with the lender: Some loan fees are negotiable. You can try to negotiate a lower origination fee or discount points with your lender.
2. Seller concessions: With a VA loan, the seller is allowed to pay all of a buyer's mortgage-related closing costs and up to 4% in seller concessions. Negotiating these costs into your purchase agreement can help reduce your out-of-pocket expenses at closing.
3. Roll closing costs into the loan: Some VA loan costs and fees can be rolled into the overall loan amount, though this does mean you'll be paying interest on those costs over time.
4. VA Funding Fee exemptions: The VA Funding Fee can be a significant expense, but it's waived for Veterans who are receiving VA disability compensation and for surviving spouses of Veterans who died in service or from a service-connected disability. If you’re not exempt, it’s important to note that starting in 2026, most Veterans, service members and surviving spouses can deduct the VA Funding Fee on their taxes.
5. Take advantage of loan discount points: Discount points lower your mortgage interest rate and monthly payments over the life of the loan. One point equals 1% of the loan amount and can decrease your interest rate by about 0.25%. However, this strategy requires you to pay more at closing.

Remember, the aim should be to reduce overall costs, not just upfront charges. Sometimes paying a bit more up front can save a lot of money over the life of the loan. Always do the math and consider your personal circumstances and long-term plans.

Consulting with a VA home loan expert can also be very beneficial. Reach out to a Veterans United home loan specialist at 855-870-8845 or get started online today.