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No matter what type of loan you’re using to purchase a home, you’ll always face closing costs. There are certain loan fees for VA loan borrowers from which you are exempt. These are known as “Non-Allowable Fees” and are strictly enforced by the VA. Here’s what you need to know:
What Is a Non-Allowable VA Fee?
The VA exists to serve veterans, current military service members, and families. With this comes the responsibility of helping them become homeowners and removing any unnecessary obstacles. One way they help borrowers is through VA Non-Allowable Fees: the fees the VA prohibits lenders from charging VA loan borrowers.
List of VA Non-Allowable Fees:
- Application Fees: Typically, borrowers will pay a fee to apply for a loan and get the ball rolling.
- VA Appraisal Fees (Ordered by Lender): Sometimes, the VA can order an appraisal, but you will not pay for an appraisal ordered by the lender.
- VA Home Inspection Fees (Ordered by Lender): You can pay for a VA-ordered inspection, but not one order by the lender.
- Document Preparation Fees: Typically, borrowers will be responsible for the cost of the lender documents.
- Attorney Fees: You cannot be charged any attorney fees by the lender.
- Mortgage Rate Lock Fees: The fee borrowers typically pay the lock-in the interest rate.
- Postage & Notary Fees: Borrowers may need to meet a notary or have documents mailed on their behalf.
- Escrow Fees: You’ll need to contribute to your escrow account at closing to pay for taxes and insurance, but you can’t be charged fees to set up the account.
- Mortgage Broker Fees: You’ll often pay additional fees if you’re working with a mortgage broker.
- Real Estate Agent Fees: Buyers are not responsible for paying realtor commissions, but they often pay their agent’s broker fees. These fees will either be paid for by the agent or the seller.
- Prepayment Penalty Fees: Some lenders charge this fee when the borrower pays off all or part of the mortgage early.
- Property Tax Service Fees: Lenders can charge this fee to ensure mortgagors pay their property taxes on time.
Remember, VA non-allowable fees only pertain to specific lender fees. There are many other parties involved whose fees you may need to pay.
What Are VA Allowable Fees?
While lenders can’t charge more than 1 percent to cover their loan origination and processing costs, there are fees you can expect to pay at closing.
List of VA Allowable Fees:
- Credit Report Fees: Lenders will need to run a search on your credit to qualify you for the loan.
- Appraisal Fees: VA appraisals should run around $600, depending on the area.
- Title Insurance: The owner’s policy is typically optional, but you will be responsible for paying the lender’s policy to the title company.
- Homeowners Insurance: Homeowners insurance protects your home from several kinds of damage.
- Origination Fees: VA loan lenders can only charge 1% for theorigination fee.
- VA Funding Fees: This fee is charged by the VA and is around 2.3% of the loan amount.
- Flood Zone Determination Fee: This inspection determines whether your home is in a flood zone.
- Select Mailing Fees: You may need to pay to have documents mailed by UPS or FedEx with VA refinances.
- Prepaid Fees: You may need to prepay property taxes and other expenses for the year.
- Recording Fees: Your mortgage and other closing documents will be recorded after closing in public records. These fees come from the county government.
- MERS Tracking Fee: This is a one-time fee paid to the Mortgage Electronic Registration System (MERS) for your loan servicing.
Ways to Lower VA Loan Fees
While the VA knocks off a lot of fees you would otherwise be paying as the borrower, you’ve seen that there are fees you will be responsible for paying. Here are a few ways you can try to lower VA loan fees.
#1. Consider Homebuyer Assistant Programs
Several homebuyer assistant programs are offered at the federal, state, and county levels. Take a look online to see which programs you could qualify for. These assistance programs can help cover closing costs and depend on your income, neighborhood, previous homeownership, owner occupancy, etc.
#2. Negotiate Closing Costs
Closing costs are a reality of buying a home, no matter the loan type. There are, however, ways to negotiate these costs down. You can shop title companies for the lowest fees, close at the end of the month, or roll closing costs into your mortgage. You can even get the seller to pay for up to 4% of your closing costs (not including lender fees) – this is the seller-paid cost limit set by the VA. It might be in their best interest to help you qualify for the loan and get to the closing table sooner.
For more information on negotiating closing costs, click here.
#3. Make a Down Payment
One of the many benefits of a VA loan is not having to make a down payment. But, by doing so, you can save on loan fees. For example, a 5% down payment can drop your VA funding fee from 2.30% to 1.65%. Not only are you saving money, but you’re increasing the equity you own in the home!
#4. Save More Money
If you know you’re going to want to buy shortly, you can start saving now. The more you know now before you get into the loan process, the better prepared you’ll be. Saving what you can now will only better your prospects when you go buy with a VA loan.
#5. Ask Family or Friends for Money (Be Careful, Though)
Lastly, you can always check with friends and family to help cover loan fees. This can be tricky, and you should check in with your lender before having any funds deposited into your account. Your lender will thoroughly look through your finances during the underwriting process, and any large cash deposits will require another review. These hold-ups could delay closing.
Bottom Line: VA Non-Allowable Fees
VA non-allowable fees are what the VA has deemed non-essential fees to make homeownership easier for veterans, active service members, and their families. Lenders can charge a 1% origination fee to cover the costs of doing business but are closely monitored by the VA.