What Are VA Non-Allowable Fees on a Home Loan?

The Department of Veterans Affairs (VA) establishes specific guidelines for its home loan program, designed to assist eligible service members, veterans, and surviving spouses in achieving homeownership. A central aspect of these regulations involves “non-allowable fees,” which are costs that the VA prohibits veterans from paying during the loan process. This protective measure ensures that veterans are not burdened with excessive or unnecessary charges, making VA loans a more accessible and affordable option for those who have served. The VA’s framework aims to reduce the financial outlay required at closing, thereby safeguarding the financial interests of veteran borrowers.

Understanding Non-Allowable Fees

Non-allowable fees are specific closing costs that the VA explicitly forbids lenders from charging to a veteran borrower. These fees are typically associated with the lender’s general overhead or services that should be covered by the loan origination fee. A primary protection is the “1 percent rule,” which dictates that a lender can charge a maximum of 1% of the loan amount for origination, processing, and underwriting the loan. If the lender charges this flat 1% fee, they are prohibited from adding separate charges for items the VA considers part of their overhead.

Specific fees commonly identified as non-allowable include loan application or processing fees, interest rate lock-in fees, and document preparation fees. Other prohibited charges often involve broker or trustee fees, certain lender-ordered appraisals or inspections (except for VA construction loans), and postage costs. Escrow or notary fees, tax service fees for tracking property tax payments, and loan closing or settlement fees are also generally non-allowable for the veteran. Historically, real estate agent commissions for the buyer were non-allowable, but recent temporary guidance allows veterans to pay reasonable and customary buyer-agent commissions. Prepayment penalties, which are charges for paying off a loan early, are also strictly non-allowable for VA loan borrowers.

Fees Veterans Can Pay

While the VA protects veterans from certain charges, there are specific fees that are allowable and typically paid by the veteran as part of the home loan process. The most prominent of these is the VA funding fee, a one-time payment directly to the Department of Veterans Affairs that helps offset the program’s cost to taxpayers. This fee’s percentage varies based on factors like loan type, down payment amount, and whether it is the veteran’s first or subsequent use of their VA loan benefit. For instance, in 2025, a first-time VA loan user with no down payment might pay a 2.15% funding fee, while subsequent users with no down payment could face a 3.3% fee. Veterans receiving VA disability compensation and certain surviving spouses are typically exempt from paying this fee.

Other common allowable fees include the appraisal fee, which covers the cost of the VA-required property valuation. A credit report fee, typically a modest amount, is also an allowable expense for checking the borrower’s creditworthiness. Veterans may also pay for a survey fee if required, title examination and insurance to verify property ownership, and recording fees charged by local government to officially register the deed and mortgage. Additionally, prepaid items such as initial deposits for property taxes, homeowner’s insurance premiums, and pre-paid interest for the first month are allowable and common at closing.

Fees Paid by Other Parties

When a fee is non-allowable for a veteran, it does not mean the cost disappears; rather, it shifts responsibility to other parties involved in the transaction. Often, the seller may agree to cover these non-allowable fees as part of the negotiation process, known as seller concessions. The VA permits sellers to contribute up to 4% of the loan amount towards closing costs and other concessions, which can include non-allowable fees, the VA funding fee, or prepaid items like property taxes and homeowner’s insurance. This arrangement can substantially reduce the veteran’s out-of-pocket expenses at closing.

Lenders also absorb certain costs that cannot be passed on to the veteran, especially if they charge the flat 1% origination fee. In some instances, the lender might provide a “lender credit” to cover some closing costs, effectively reducing the cash needed from the veteran at closing. Furthermore, certain inspection costs, like those for wood-destroying insects, may be paid by the seller, depending on regional practices or VA requirements.

Reviewing Your Loan Documents

Understanding where to locate fee information in your loan documents is an important step in managing your VA home loan. The Loan Estimate (LE) and the Closing Disclosure (CD) are two central documents that provide a detailed breakdown of all associated costs. The LE, provided early in the process, offers an estimate of your loan terms and closing costs, typically found on page 2, in sections A, B, and C. The Closing Disclosure, a final review document received at least three business days before closing, provides the definitive figures.

Carefully comparing the itemized fees on your Closing Disclosure against your initial Loan Estimate is crucial for identifying any discrepancies or prohibited charges. Pay close attention to the “Lender Credits” section on both documents, as these can indicate amounts the lender is contributing to cover costs. Scrutinizing each line item on the CD helps ensure that no non-allowable fees have been mistakenly or improperly charged to you. This proactive review before the closing date empowers you to address any concerns and confirm compliance with VA regulations.

Addressing Prohibited Charges

If, after reviewing your loan documents, you believe you have been improperly charged a non-allowable fee, there are specific steps you can take to address the issue. Your first action should be to discuss the discrepancy directly with your lender or loan officer. They can often clarify the charge or correct any errors that may have occurred during the loan process. It is important to clearly explain your concerns and reference the specific VA guidelines regarding non-allowable fees.

Should the issue remain unresolved with your lender, you can elevate your concern to the Department of Veterans Affairs. Contacting the VA Regional Loan Center is an appropriate next step, as they oversee VA loan compliance and can provide guidance or intervene on your behalf. For broader consumer protection issues or if you suspect deceptive practices, you may also consider filing a complaint with the Consumer Financial Protection Bureau (CFPB), which enforces regulations designed to protect consumers in the financial marketplace.