Understanding VA Loan Closing Costs: What You Can and Cannot Pay

A common misconception about the VA loan is that "zero down payment" means "zero out of pocket." While it's true you don't need a down payment, there are still closing costs associated with buying a home. However, the VA strictly regulates what a veteran is allowed to pay to protect them from excessive fees.

Allowable Closing Costs

The VA allows veterans to pay "reasonable and customary" closing costs. According to VA guidelines, you are permitted to pay for the following:

• Appraisal and Compliance Inspections: The cost of the VA appraisal and any required re-inspections.
• Recording Fees: Fees charged by the local government to record the deed and mortgage.
• Credit Report: The fee the lender pays to pull your credit history.
• Pre-Paid Items: Your initial escrow deposits for property taxes and homeowners insurance.
• Hazard Insurance: Your homeowners insurance premium, including flood zone determination fees.
• Survey: The cost of a property survey, if required.
• Title Exams and Title Insurance: Both lender's and owner's title policies.
• VA Funding Fee: Which can be paid in cash at closing or rolled into the loan.
• 1% Origination Fee: Lenders can charge a flat origination fee of up to 1% of the loan amount.
• Discount Points: Bonafide discount points paid to lower your interest rate.

The 1% Origination Fee Rule & Non-Allowable Fees

If a lender charges the 1% flat origination fee, that fee is intended to cover all other lender overhead and processing costs. If they charge this 1% fee, they cannot charge you additional itemized fees. The VA explicitly forbids veterans from paying the following "non-allowable" fees if the 1% cap is met:

• Attorney Fees (unless for specific title work)
• Brokerage Fees
• Pre-Payment Penalties
• Processing or Underwriting Fees
• Admin or Application Fees
• Closing or Settlement Fees (Escrow fees)
• Notary Fees
• Tax Service Fees

Seller Concessions

One of the best ways to minimize your out-of-pocket expenses is through seller concessions. The VA allows the seller to contribute up to 4% of the purchase price toward your closing costs, VA funding fee, or even to pay off your credit balances and judgments. As your real estate strategist, negotiating these concessions is a core part of our mission to help you win.

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