Understanding VA Home Loan Fees

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ByChristopher Boston
Edited byCasie McCoskey
ByChristopher Boston
Edited byCasie McCoskey

Updated: November 20, 2023

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VA loans open doors to homeownership for eligible veterans and service members, offering perks like no down payment and competitive interest rates. However, like any home financing option, VA loans come with specific fees, including a one-time VA funding fee and a loan origination fee. A clear picture of these costs will help you manage your financial responsibilities effectively. Understanding these fees upfront not only prepares you for the financial commitment but also empowers you to make informed decisions throughout your homebuying journey.

VA Loans Overview

VA loans are mortgage loans backed by the United States Department of Veterans Affairs (VA), offering a gateway to homeownership for those who have served our country. The key benefits include no down payment, competitive interest rates and no private mortgage insurance requirement, making it a cost-effective choice.

Eligibility for a VA loan extends to veterans, active-duty service members, National Guard members, reservists and some surviving spouses. However, you must secure a Certificate of Eligibility (COE) affirming your service history and entitlement to VA loan benefits. VA loan limits, which determine the amount you can borrow, can vary by county. These limits are something to be aware of to align your homebuying aspirations accordingly.

Understanding VA loans also entails being familiar with the associated costs. For instance, there's a one-time VA funding fee, loan origination fee and appraisal fee. Knowing these beforehand allows for better financial planning, preventing future monetary strain or unexpected hurdles. A clear insight into these costs helps you achieve financially secure homeownership.

VA Funding Fee

The VA funding fee is a one-time charge that significantly lowers the loan's cost to taxpayers, making VA loans a unique offering compared to other mortgage types. It supports the VA's home loan program, ensuring it remains a viable option for future veterans, too. Some borrowers are exempt from the VA loan funding fee, like those receiving VA disability compensation or if you are a surviving spouse of a veteran who died in service or from a service-connected disability.

Your VA funding fee varies based on several factors, such as the loan type, down payment and whether you've had a VA loan before. To provide a clear picture of how these factors affect the fee, VA funding fee rate charts are available. These can help illustrate the different scenarios, offering a transparent view of what to expect and making your homebuying journey more predictable.

VA Funding Fee Rate Charts

The type of VA loan you choose can influence the VA funding fee you'll need to pay. The VA rolled out new guidelines effective April 2023, further clarifying the fee structure. You can refer to the rate charts below to get a better understanding of your funding fee.

VA-Backed Purchase and Construction Loans
Down Payment
First-Time Use
Subsequent Use

Less than 5%

2.15%

3.3%

5%–10%

1.5%

1.5%

10% or more

1.25%

1.25%

Note: If you used a VA-backed or VA direct home loan to purchase only a manufactured home in the past, you would still need to pay the first-time funding fee.

VA-Backed Cash-Out Refinancing Loans

  • First use: 2.15%
  • Subsequent: 3.3%

The VA funding fee rates for refinancing loans don’t change based on your down payment amount. If you have used a VA-backed or VA direct home loan to purchase only a manufactured home in the past, you’ll still pay the first-time funding fee.

Other VA Home Loan Types
Loan Type
Funding Fee

Native American Direct Loan (NADL) for Purchase

1.25%

Native American Direct Loan (NADL) for Refinance

0.5%

Interest Rate Reduction Refinance Loan (IRRRL)

0.5%

Manufactured Home Loans

1%

Loan Assumptions

0.5%

Note: The VA funding fee rate for these loans doesn’t change based on your down payment amount or whether you’ve used the VA home loan program in the past.

Source: U.S. Department of Veterans Affairs

The VA loan funding fee charts are vital for borrowers to gauge the cost implications of their loan choices. These allow you to plan your finances better, ensuring a smoother transition into home ownership. This clear breakdown of fees also reinforces the transparency of choosing a VA loan, providing you with a clear path with no surprises.

VA Loan Origination Fee

The VA loan origination fee is a crucial aspect to consider when navigating the expense of a VA loan. It covers the lender's cost for processing, underwriting and reviewing your loan application according to the VA's guidelines. A unique feature of VA loans is the maximum limit set by the VA on origination fees, which caps at 1% of the loan amount. It serves as a protective measure, preventing lenders from imposing excessively high fees on borrowers. It also ensures that the costs of obtaining a VA loan remain reasonable and within reach for eligible veterans and service members. The cap makes VA loans more appealing than other mortgages, especially conventional loans, where origination fees can be higher.

The VA loan origination fee is a component of your total closing costs, which are the charges you'll need to cover to finalize your loan. As you delve into its breakdown, understanding the origination fee will help you get a clear picture of your financial commitment.

VA Appraisal Fee

VA appraisal fee covers the expense of evaluating the home to ensure it meets the VA's minimum property requirements. Unlike conventional loan appraisals that focus mainly on value, VA appraisals delve into both value and condition, ensuring a safe and sound dwelling. Typically, the VA appraisal fee amounts to a few hundred dollars.

Another term you might encounter is a home inspection — which differs significantly from an appraisal. A home inspection is a thorough check-up of the home's structural and mechanical systems. Remember that an appraisal is mandatory, while an inspection is optional. However, getting both provides a clear picture of what you're buying despite the increased upfront costs.

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VA MINIMUM PROPERTY REQUIREMENTS

The VA's Minimum Property Requirements (MPRs) are a set of standards to ensure that the home you're buying is a sound investment and a safe, livable place. These cover various aspects such as the home's construction, roof, ventilation and mechanical systems, among others. The VA has these requirements to prevent you from getting into a home that will demand costly repairs or pose health and safety risks. The appraisal process is worthwhile since it reassures you and the lender that the house is worth the investment. Meeting the VA's MPRs ensures your journey to homeownership is secure and enjoyable without unwelcome surprises down the road.

Discount Points for VA Loans

Discount points are a way to pay some interest upfront on your VA loan, letting you buy a lower interest rate. It can be a smart move if you plan on staying in the home for a long time. Typically, a discount point costs 1% of your borrowed amount and may reduce your interest rate by about 0.25%.

Imagine you're getting a VA loan of $200,000. One discount point would cost you $2,000 and could lower your interest rate from 4% to 3.75%. Over time, it could save you more than the initial cost of the discount point, making your home loan more affordable in the long run.

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UNDERSTANDING VA DISCOUNT POINTS SAVINGS

The break-even point is when the savings from the lower interest rate equal the cost of the VA discount points you paid upfront. Knowing this point helps you decide if the upfront cost is worth the potential long-term savings.

To calculate the break-even point, divide the cost of the discount points by the monthly savings on your mortgage payment. For example, if VA discount points cost you $2,000 and you save $50 per month on your mortgage payment, your break-even point would be 40 months ($2000/$50). If you plan to stay in your home for over 40 months, buying discount points would be beneficial as you'd save more over time.

VA Loan Title Charges

Title charges are a crucial part of your VA loan costs, covering essential steps in verifying the legitimacy of the property title and securing the loan. These charges encompass a title search, title insurance and settlement services. The title search is vital as it verifies the legal ownership of the seller, ensuring there are no issues like liens or disputes over the property.

Title insurance comes in two types: lender's title insurance and owner's title insurance. The former protects the lender against title issues, while the latter safeguards your rights as the homeowner. Both are significant as they provide security against any unforeseen title claims that may arise in the future.

Besides the cost from the title search, lender and owner's title insurance, here are other title charges associated with VA loans:

  • Settlement Agent Fee: Covers the cost of a professional coordinating the loan's closing.
  • Recording Fee: A fee paid to a government entity to record the change of ownership.
  • Notary Fee: Covers the cost of having documents notarized during the transaction.
  • Title Endorsements: Additional protections that you can add to the title insurance policy.

Title charges form a portion of the VA loan closing costs you'll need to pay, emphasizing the multiple layers involved in securing a VA loan. Understanding these costs helps you navigate your homebuying journey with more clarity and ensures you are well-prepared for the financial commitments involved.

Non-Allowable Fees for VA Loans

Non-allowable fees are charges the VA prohibits veterans from paying, ensuring the homebuying process remains affordable. Being aware of these fees safeguards you from unexpected costs and clarifies what fees are your responsibility. Here are some common non-allowable fees:

  • Real Estate Attorney Fees: These fees are for legal services related to the homebuying process. While a real estate attorney can provide valuable assistance, the VA does not allow veterans to cover these costs.
  • Brokerage Fees: Fees charged by mortgage brokers for connecting borrowers with lenders are also considered non-allowable.
  • Prepayment Penalties: If a loan has fees for paying off the loan early, these prepayment penalties are non-allowable fees for VA loan borrowers, ensuring no additional costs if you decide to pay off your loan ahead of schedule.
  • Application Fees: Lenders may charge a fee just for applying for a loan. The VA safeguards veterans from such charges by categorizing them as non-allowable.
  • Escrow Fees: These fees cover the cost of escrow services, which hold funds securely during the transaction. VA guidelines protect veterans from having to pay these fees.
  • Rate Lock Fees: Some lenders may charge a fee to lock in an interest rate. The VA's non-allowable fee list ensures veterans are not required to pay this fee.
  • Appraisals or Inspections Ordered by the Lender: If your lender requires additional appraisals or inspections, remember that these fall under non-allowable fees. Only the VA appraisal is mandatory (and allowable).

Non-allowable fees are usually covered by the seller or the lender, keeping your out-of-pocket costs lower. Recognizing them on your loan estimate helps you to ensure that your VA loan process is following the guidelines set forth by the VA. If any of these non-allowable fees appear on your loan estimate or closing disclosure as charges you are responsible for, prepare to address this with your lender promptly or contact the VA.

Non-Loan Closing Costs

Non-loan closing costs are additional expenses you'll encounter when securing a home. Knowing these costs helps you plan your finances better and negotiate where possible. Here are the different non-loan closing costs you might come across:

  • Upfront Property Tax and Insurance: Paying your property tax and homeowners insurance in advance, securing your new home's legality and safety from the get-go.
  • Daily Interest Tally: Interest accruing from the closing date till month-end, a small daily charge that adds up.
  • HOA Dues: Homeowners Association fees for community maintenance and amenities, if applicable.
  • Home Warranty Dues: Optional coverage for repairs and replacements of home systems and appliances.
  • Real Estate Commissions: Fees paid to real estate agents for facilitating the sale.

These costs contribute to the total amount you'll need to have on hand at closing. Factoring them into your budget can aid in a smoother closing process. It also opens room for negotiations, like asking the seller to cover some of these expenses, making your homebuying journey more affordable.

Paying Closing Costs of a VA Loan

Knowing your options for covering closing costs allows you to plan your finances accurately. It also provides choices to help you align homebuying with your current financial situation. Let's explore the different avenues you can utilize to settle your closing costs:

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    Roll into the Loan Amount

    You can include your closing costs in your loan amount. While this option reduces the upfront cash needed, it slightly increases your monthly payments. We recommend calculating how this would impact your monthly budget over the long-term life of the loan.

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    Pay out of Pocket

    Paying your closing costs out of pocket means covering these expenses upfront. This choice keeps your loan amount and monthly payments lower. It’s a good option if you have the funds saved and prefer not to increase your loan amount.

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    Seller Concessions

    Sometimes, you can negotiate with the seller to cover part or all of your closing costs. It can significantly ease your upfront financial burden. However, not all sellers may be willing or able to agree to this, so having a backup plan is tactful.

Proper planning for VA loan closing costs helps you have a smooth home purchase. It starts with getting an accurate estimate of these costs from your lender and then analyzing your financial situation to determine the most suitable payment method.

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HOW SELLER’S CONCESSIONS MAKE VA LOANS AFFORDABLE

A seller's concession refers to contributions from the seller to assist the buyer with closing costs. The VA max sellers concession limit ensures a fair contribution without adding undue burden on the seller. These concessions can cover a portion of the closing costs or prepaid expenses like property taxes or homeowners insurance. By easing the upfront financial burden, seller's concessions make VA loans more affordable for buyers. When negotiating the seller's concessions, clear communication with the seller about your needs while understanding the limits set by the VA can lead to a beneficial agreement for both parties, smoothing the path to your new home.

Reducing VA Loan Closing Costs

Reducing closing costs on VA loans is a viable strategy that can make homeownership more accessible, especially for first-time homebuyers or borrowers on a tight budget. By exploring various ways to minimize these costs, you can save a significant amount of money upfront. Here are some strategies to curb your VA loan closing costs:

1
Shop Around for Lenders

Different lenders may offer varying closing costs. By shopping around and comparing expenses from multiple lenders, you can choose one that offers lower fees.

2
Negotiate Fees With Your Lender

Some closing costs are negotiable. Discuss with your lender if any fees can be reduced or waived.

3
Close at the End of the Month

Closing later in the month can reduce the per diem interest charges you’ll need to pay, thereby reducing your overall closing costs.

4
Review the Loan Estimate and Closing Disclosure

Carefully review these documents to ensure there are no unnecessary charges and everything is as agreed upon with your lender.

Ultimately, it's all about being informed and proactive in seeking ways to minimize costs without compromising the quality of your home purchase. This approach not only lightens your financial load but also fosters a sense of empowerment as you step into your new home.

FAQ About VA Loan Fees

Securing a VA loan involves several fees, and understanding them can significantly ease your homebuying journey. We gathered some commonly asked questions about VA home loan fees, helping you make informed decisions.

How are VA loan fees different from other mortgage loan fees?
What is the VA funding fee, and how is it calculated?
Can the VA funding fee be waived or reduced?
What is the VA loan origination fee, and what does it cover?
What are non-allowable fees in a VA loan?
What comprises the closing costs of a VA loan?
Who pays closing costs on a VA loan?
Can I roll closing costs into my VA loan?
What is a seller’s concession, and how does it relate to VA loan closing costs?
Are there any other costs or fees to be aware of when obtaining a VA loan?

About Christopher Boston


Christopher Boston headshot

Christopher (Croix) Boston was the Head of Loans content at MoneyGeek, with over five years of experience researching higher education, mortgage and personal loans.

Boston has a bachelor's degree from the Seattle Pacific University. They pride themselves in using their skills and experience to create quality content that helps people save and spend efficiently.


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