Fees, Closing Costs, and Seller Concessions

Generally, no. If you are paying the 1% flat origination fee to the lender, separate charges for interest rate lock-ins, loan application, and processing are considered “unallowable” and cannot be charged to you. These are considered administrative overhead costs that must be covered by the flat fee. Even if the lender does not charge the full 1% flat fee, they generally cannot charge you for these specific administrative items as itemized fees. They must be paid by the lender out of their flat fee, or by another party, such as the seller.

Yes, the fee structure for IRRRLs (Streamline Refinances) is more flexible regarding financing. Unlike purchase loans, you are permitted to include all allowable closing costs, the VA Funding Fee, and the lender’s flat charge in the new loan amount. Additionally, you can finance up to two discount points into the loan balance. This allows most Veterans to refinance with little to no out-of-pocket expense. However, you typically cannot receive cash back from an IRRRL, except for minor adjustments or up to $6,000 for completed energy efficiency improvements.

You cannot be charged for attorney’s fees that represent work performed for the lender, such as document preparation or review on the lender’s behalf. However, you are permitted to pay reasonable fees for title examination and title insurance, which are often handled by attorneys. Furthermore, VA regulations do not prevent you from hiring your own independent attorney to represent your personal legal interests during the transaction. If you choose to retain independent counsel, you may pay those legal fees directly. The closing documents must clearly indicate that the fee is for your independent representation, not the lender’s.

The 1% flat charge is an origination fee intended to cover the lender’s administrative overhead and operating costs. If a lender charges this 1% fee, they are strictly prohibited from charging you separately for “unallowable” administrative items. These unallowable items include fees for loan application or processing, document preparation, interest rate lock-ins, postage, notary services, and tax service fees. The flat fee bundles these overhead costs. If a lender charges you the 1% flat fee and also attempts to charge line items for “processing” or “doc prep,” they are violating VA fee guidelines.

No. VA regulations expressly prohibit Veteran-purchasers from paying brokerage fees or commissions to real estate agents or brokers in connection with a VA loan. This rule applies even if you hire a “buyer-broker” to represent your interests. While you are free to use a buyer’s agent, their compensation must be paid by the seller or the listing broker. You cannot use your loan proceeds or personal funds to pay these commissions. This regulation is intended to ensure that Veterans are not burdened with fees that are traditionally the responsibility of the seller in the housing market.

No, this is a distinct advantage of the VA loan program. The payment of the buyer’s “customary closing costs” and discount points appropriate to the market are excluded from the 4% concession limit. For example, if the seller agrees to pay your title insurance, recording fees, origination fee, and standard discount points, these amounts do not count against the 4% cap. Theoretically, a seller could pay all of your allowable itemized closing costs and then contribute an additional 4% of the home’s value in true concessions, such as paying off your student loans or prepaid taxes.

A seller concession is anything of value added to the transaction by the seller for which you pay nothing extra. VA regulations cap these concessions at 4% of the property’s estimated reasonable value (not necessarily the sales price). Items that count toward this 4% cap include the seller paying your VA Funding Fee, paying off your credit card balances or judgments to help you qualify, providing gifts like televisions, or paying for “extra” discount points to permanently lower your interest rate. This limit prevents excessive inducements that might encourage Veterans to buy homes they cannot afford.

For a standard VA purchase loan, you generally cannot roll settlement charges or closing costs into the loan amount. VA regulations limit the loan amount to the reasonable value of the property (the appraised value). Therefore, standard closing items like title fees, recording charges, and insurance premiums must be paid upfront or covered by the seller. The only exceptions are the VA Funding Fee and up to $6,000 for energy-efficiency improvements, which can be added to the loan balance. If you cannot pay closing costs in cash, you must negotiate for the seller to pay them as part of the contract.

The VA Funding Fee is a mandatory government charge used to keep the loan program running without expense to taxpayers. The fee amount is a percentage of the loan, ranging roughly from 1.4% to 3.6%, depending on whether you are a first-time or subsequent user, your branch of service, and the size of your down payment. However, you are legally exempt from paying this fee if you receive VA compensation for a service-connected disability, or if you are a surviving spouse of a Veteran who died in service or from a service-connected disability. This fee can be financed into your loan amount.
 

VA regulations strictly limit the fees you can be charged to prevent “junk fees.” You are allowed to pay a flat lender origination fee, which cannot exceed 1% of the loan amount. In addition to this flat fee, you may pay reasonable and customary amounts for specific itemized third-party services. These allowable itemized fees include VA appraisal and compliance inspections, credit reports, recording fees and taxes, title examination and insurance, hazard/flood insurance premiums, and flood zone determinations. You may also pay for a survey if required. You cannot be charged for overhead costs like document preparation or loan processing if you pay the 1% flat fee.