VA Loan Fees- The Fees You Can Expect To Pay and The Fees That Are Forbidden

Like any other mortgage program, VA home loans have fees associated with them. The fees VA-eligible borrowers may anticipate seeing in their VA-guaranteed mortgage closing documents are:

• VA funding fee
• Credit report
• Appraisal/compliance inspection
• Land survey
• Lender’s origination
• Discount points
• One year’s worth of property taxes
• One year’s worth of property insurance
• Hazard insurance
• Flood zone determination and insurance
• Title examination and insurance
• Recording/Recording Taxes
• Mailing and/or wire fees

A fee that is unique to the VA home loan program is the VA funding fee. Lenders that are VA-approved must, by law, charge a VA funding fee for almost all VA-guaranteed mortgages. Depending on the VA-eligible borrower’s situation, the funding fee can run between on-half to three and one-third percent according to the borrower’s military affiliation, how many times the borrower has used the VA home loan program and what kind of VA home loan is being made. Disabled veterans and surviving spouses are exempt from paying the VA funding fee under certain VA guidelines.

Though the VA funding fee is unique to VA loans, many of the other fees borrower find with VA loans are also found with most other mortgage programs. These include costs the lender incurs for getting a credit report, an appraisal and inspection on the property.

Another charge that may appear in closing documents for a VA-guaranteed loan is a land survey fee.  Not always necessary, a land survey might be performed if there is any question about the property lines for the home being financed with a VA loan.

Commonly charged with all types of mortgage loans, including VA mortgages, can be a lender’s origination fee. Though the VA limits the fee to one percent, an origination fee may be included in the fees associated with VA loans.

Related to lender’s origination fees are rate reduction points. If a borrower wishes to get a lower interest rate than what the lender is offering, he or she can “pay down” the rate with percentage points. Traditionally, $1,000 will reduce the rate by one percent. There may be limits on what a VA-approved lender can charge VA-eligible borrowers for origination and rate-reduction-point fees. Where applicable, the total amount of origination and rate reduction fees combined may not exceed the state limit. If the origination and rate reduction fees exceed the limit, many VA-approved lenders find themselves providing “free” VA loans with no origination or point reduction fees.

Very commonly, some fees associated with VA loans are put into escrow to pay for the first year’s expenses related to the mortgage. These fees may include property taxes and insurance. These fees are then divided by twelve and included in the monthly mortgage payment for subsequent annual taxes and insurance paid through escrow.

Besides property insurance, other insurances like hazard and flood may be charged monthly and put into escrow. Hazard insurance may not always be necessary. But, flood insurance is required if a property financed with a VA loan turns out to be in a flood zone.

The final fees that may appear on the VA loan closing documents belong to the title company.  The title company may charge for a title examination and insurance and mailing or wire fees. 

Most of the fees found at a VA mortgage closing can be rolled into the total amount of the loan provided the total does not go over the conforming loan limit for the county in which the VA-guaranteed loan is made. A VA-eligible buyer can pass the fees on to the seller, but the VA limits seller-paid fees to four percent of the total purchase price.

After all fees are considered, the costs involved with VA loans are comparable to those of most other mortgages.

VA-guaranteed mortgages come with certain costs like appraisal fees, a VA funding fees and some other closing costs.  However, some fees are unacceptable when it comes to VA loans and can never be charged to VA-eligible borrowers.

The U.S. Department of Veterans Affairs (VA) forbids the following fees from being charged during the VA loan process:

• Attorney fees associated with the property seller or mortgage lender
• Commissions as a result of the real estate agent or broker
• Fees associated with the buyer’s broker
• Inspection costs associated with HUD-built homes
• Lien penalties attached to homes being sold to VA borrowers

First, a property seller or VA-approved mortgage lender may not charge a VA borrower any attorney or legal fees.  Attorney and/or legal fees associated with a real estate purchase may only be paid by a VA borrower if the services were hired by the borrower. 

Second, it is never permitted for a VA borrower to pay commissions charged by a real estate agent or broker. Purchase contracts should be read carefully to be sure such commissions are not disguised as other real estate services.

Third, commissions associated with home-finding brokers may not be charged to a VA-eligible borrower. The VA makes it clear that online multi-listing services (MLS) and other real estate listings are ample enough that a VA mortgage applicant using a qualified real estate agent should be able to find a suitable property to buy without the extra help from a home-finding broker. 

Fourth, inspection or re-inspection costs associated with HUD-built homes may not be charged to military members using their VA home loan benefits. HUD-built homes are constructed by HUD-approved contractors who are obligated to build according to HUD guidelines. Inspection fees associated with HUD-approved constructions are the responsibility of the builder or project sponsor.

Finally, a VA-eligible borrower is restricted from paying any lien penalties on a property her or she is purchasing such as prepayment penalties.  If such a lien exists on a property, the seller cannot pass the responsibility on to the VA-eligible buyer in order to clear title.

Further information about VA-guaranteed home loans, fees associated with VA loans, and the forbidden fees associated with them can be obtained by contacting a VA loan professional.