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VA Loan Closing Costs
A common misconception about VA loans is that there are no closing costs or that the veteran does not have to pay for the closing costs. VA loans have the exact same fees as a non-VA loan or conventional loan and as a matter of fact in some cases could have more costs such as the VA funding fee.
Eventhough VA loans have similiar fees to other types of home mortgages, it is true that the Department of Veterans Affairs has made it illegal to charge a veteran certain fees. These non-allowable fees must be paid for by a third party such as the seller, the broker or the lender.
The VA guidelines state that the veteran can pay the following closing costs:
- a maximum for all customary and reasonable amounts for any of the "Itemized Fees and Charges" designated by VA.
- A one percent (1%) flat charge by the lender
- reasonable discount points is also allowed. There are some special provisions, which apply to other different VA loans such as construction, improvement and repair loans.
The Department of Veterans Affairs defines allowable charges and fees that the veteran borrower can pay or closing costs that may be charged to the borrower. All of these costs are determined as reasonable and customary by each local VA office. All other costs in the transaction are considered non-allowable. They are usually paid by the seller when purchasing a new home or by the lender when refinancing your current VA mortgage.
These allowable and customary items are as follows:
- Appraisal and compliance inspections
- Recording fees
- Credit report
- Prepaid items, including a portion of taxes, assessments, and similar items for the current year chargeable to the veteran and the initial deposit for the tax and insurance account.
- Hazard insurance: The veteran can pay for the hazard insurance premium. This includes flood insurance, if required.
- Flood zone determination
- Title examination and title insurance
- VA funding fee (unless exempt from the fee with a 10% minimum disability from the VA)
The Department of Veterans Affairs defines non-allowable charges and closing costs as:
Closing costs or fees that are NOT ALLOWED to be paid for by the borrower
The fees on this list MUST BE paid for by the seller or lender
- Attorney fees
- Brokerage fees
- Pre-Payment penalties
- HUD/FHA inspection fee
- Lender’s appraisals
- Lender’s inspections, except in construction loan cases
- Loan closing or settlement fees
- Document preparation fees
- Preparing loan papers or conveyancing fees attorney’s services other than for title work
- Interest rate lock-in fees
- Postage and other mailing charges, stationery, telephone calls, and other overhead
- Amortization schedules, pass books, and membership or entrance fees
- Escrow fees or charges
- Notary fees
- Commitment fees or marketing fees of any secondary purchaser of the mortgage and preparation and recording of assignment of mortgage to such purchaser
- Trustee’s fees or charges
- Loan application or processing fees
- Fees for preparation of truth-in-lending disclosure statement
- Fees charged by loan brokers, finders or other third parties whether affiliated with the lender or not, and
- Tax service fees.