VA Allowable Fees and Non-Allowable Closing Costs
What are the VA allowable fees when purchasing or refinancing your home? VA home loans come with many benefits that you just can’t get with any other loan, and one of the best benefits beyond low interest rates is that several fees normally charged with other loans are not allowable through the VA. That means even more money you get to keep in your pocket. But how do you know which fees you’ll be charged for and which you won’t? Take a look at these VA allowable fees and non-allowable closing costs. If you notice that a VA lender is asking you to pay for something on the non-allowable list, know that you, as the borrower, are not allowed to pay it by law, and you should fight to have the charge removed.
VA Allowable Fees
Fees and closing costs are essentially the price you pay to actually process your loan while the interest rate is the price you pay to borrow the money. The main allowable fees can be listed in an easy-to-remember acronym (ACTORS): appraisal, credit report, title insurance, origination fee, recording fee, and survey. Costs that the VA allows the veteran borrower to pay can also be split into 2 forms: POC (paid outside closing) and PFC (prepaid finance charges).
Beyond the allowable fees listed in the acronym ACTORS, there are also a few other items on the VA’s official list:
- Document draw fee
- Notary fee
- VA funding fee
- Tax proration to recording day
- Home protection plan
- Hazard insurance premium
Non-Allowable Closing Costs
The list for VA closing costs allowed may look lengthy and expensive, but it is actually much, much shorter than the list of non allowable VA fees. The VA forbids lenders from charging borrowers these fees because the VA loan is meant to be a huge benefit for veterans. The program is meant to give them an affordable option for owning a home in the country they’ve fought for. As that veteran borrower, you can feel more secure in your home loan knowing that you don’t have to pay the following fees:
- Loan tie-in
- Lender documents
- Tax service contract
- Photo inspection
- Recording fees charging more than $17
- Change of ownership
- Transaction coordinator
- Title policy endorsement
- Reconveyance (allowable for refinances)
- Prepayment penalties (allowable for refinances)
- Demand or payoff statement (allowable for refinances)
Who Pays What When
Even the fees that can be charged have a limit to how much money they are allowed to be charged for each cost. For example, the origination fee cannot exceed 1 percent of the loan amount. The recording fee has a similar restriction and cannot exceed $17. It’s also important to know that closing costs can often be financed into the loan amount, meaning you pay nothing out of pocket on the day of closing, but you do eventually pay off all of those costs throughout the life of your loan.
Now, you do not always need to cover these costs. It is very common for borrowers to negotiate with the seller, asking him or her to cover closing costs in exchange for other terms (such as settling for the asking price instead of bidding lower). The seller may pay all or part of the total cost of closing—there aren’t any VA rules regarding this. The lender can also cover closing costs if the borrower is unable to, but this option comes with a sometimes heavy price—usually in the form of a higher interest rate.
If you want to purchase or refinance a house but are hesitant to do so because of the closing costs, consult a loan officer here at Low VA Rates. We can help you understand about how much you would realistically spend on closing, and we can explain all of your options.