Becoming a homeowner should be one of the most exciting milestones of your life. But the journey to this achievement can be complex and confusing if you don’t know what to expect. And as an eligible military borrower, you may already know that home loans with the support of the U.S. Department of Veterans Affairs (VA) have different guidelines than other traditional mortgages. Specifically, there are certain closing costs that may be limited or negotiable for you.
Before getting to the closing table, make sure you’re educated about the specific VA loan closing costs you’re responsible for and which ones can be reduced for you. Keep in mind that these costs can differ between borrowers. Communicating with your lender throughout the process can help mitigate any confusion and help you understand the full scope of your non-allowable and allowable fees.
What Are VA Non-Allowable Fees?
If you’re an eligible military borrower, the VA limits or does not permit you to pay certain closing costs when you receive a VA loan. Make sure you understand what specific fees these are so you can catch any mistakes before your closing day. Check out the list below:
Lender Fees
The one percent rule refers to the guideline established by the VA which states that lenders cannot charge the borrower more than one percent of the loan amount for their lender fees. This protects you from any excessive fees and helps to ensure your loan remains attainable and affordable.
Attorney’s Fees
While your lender usually can’t charge you for any attorney fees, you can still hire an attorney and pay for their services separately when you buy a home.
Brokerage Fees
The real estate agent typically cannot charge you any fees or commissions for their services.
Prepayment Penalties
Borrowers cannot use loan proceeds to pay penalty costs for either a refinance or purchase of a home.
HUD/FHA Inspection Fees
If you choose to build a home under the Federal Housing Administration (FHA) or the Department of Housing and Urban Development (HUD) supervision, you cannot be charged for any inspections or re-inspections. These must be paid for by the builder or sponsor.
Who Pays VA Non-Allowable Fees?
Since you’re not paying these fees, you may be wondering who does. It’s quite simple: Either lender fees can be covered by the seller or real estate agent, or the lender can waive their fees altogether.
The seller may also pay non-allowable fees as “seller concessions.” However, the total concession cannot exceed 4 percent of the loan amount.
How to Decrease VA Allowable Fees
Now that you know about VA non-allowable fees, take some time to learn about the allowable fees as well. Once you familiarize yourself with these costs, it’s important to understand that you can often reduce them in a number of ways.
Negotiate with the Lender
In many cases, closing costs and other fees can be negotiable with the lender. You never know until you ask, so make sure to speak with your lender to find out if any of your fees can be reduced to minimize your costs.
Seller Concessions
As stated above, the seller can also help pay for allowable fees. Speak with them in addition to your lender to find out what’s feasible. Just remember, they can’t pay more than 4 percent of the loan amount.
Roll Closing Costs Into the Loan
For convenience, you may be able to roll your closing costs into your loan so you can pay them over time. Keep in mind you may have to pay interest on those costs as well.
Funding Fee Exemptions
The VA Funding Fee is a required cost for VA loans and how much you pay depends on the type of loan you get and the total amount of your loan. However, you may be exempt from paying this fee if you have a service-related disability or are the spouse of someone who passed from a service-related disability. For more details about exemptions, visit the U.S. Department of Veterans Affairs website.
Loan Discount Points
You may be able to purchase discount points which can help decrease your mortgage interest rate or monthly mortgage payments. Just keep in mind that you may need to pay more at closing if you opt to get discount points.
Know What’s Non-Allowable
Typically, educating yourself about the mortgage process is the first step to an easier, quicker closing. That includes the closing itself. Ensuring you understand VA guidelines, what’s permitted and what isn’t, and what’s negotiable are all important steps to getting through your loan journey with minimal roadblocks.
Non-allowable fees were put in place so you, as a military borrower, could access home financing in an affordable way. Make sure you’re aware of your advantages and consult the VA website or your lender if you have questions or need confirmation about the mortgage process.
This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to your individual situation.
