So here’s what happens all the time. Veterans hear “no down payment” and think closing means walking in, signing loan papers, getting keys.
Nope.
You’re still going to have closing costs with a VA loan. But here’s where it gets interesting – the VA actually puts limits on what lenders can charge you. After helping 1,213 veterans through this whole process, I can tell you that understanding these rules saves people serious money. We’re talking thousands of dollars here.
And it keeps you from getting completely blindsided when you’re sitting at the closing table trying to figure out what all these fees are.
Table of Contents
Bottom Line – What You Need to Know
VA loan closing costs usually run between 2-6% of your loan amount. The VA controls which fees you can pay and which ones are completely off-limits.
$300,000 house? You might be looking at $6,000 to $12,000 in total closing costs, depending on the state. Sounds like a lot, right? Well, it is. But you won’t pay nearly as much as someone with a conventional loan because of VA protections.
Think of it this way – there are fees you can pay, and fees you absolutely cannot pay no matter what.
What You CAN Pay
I like breaking these into three buckets.
VA-Specific Stuff
VA Funding Fee
This one’s unique to VA loans. It keeps the whole program running without taxpayer money. How much you pay depends on several things:
- First time using VA loan, no down payment: 2.15% of loan amount
- First time, 5-9% down payment: 1.50%
- First time, 10%+ down payment: 1.25%
- Second time using VA loan, no down payment: 3.30%
- Second time, 5-9% down: 1.50%
- Second time, 10%+ down: 1.25%
- VA refinance (IRRRL): 0.50%
You can pay this at closing or just add it to your loan. Most people add it to the loan because who wants to write another check at closing?
Here’s the good news though. If you have ANY VA disability rating – doesn’t matter if it’s 10% or 100% – you don’t pay this fee at all. Same thing if you’re a surviving spouse of a veteran who died from service-connected issues.
VA Appraisal Fee
The VA sets this cost, not your lender. Usually runs $525 to $1,300 depending on where you’re buying. This covers the home’s value AND makes sure it meets VA standards. You have to pay this one upfront, by the way.
Regular Lender Fees
Origination Fee
This is where lenders make their money on your loan. VA lenders can charge up to 1% of your loan amount. So on a $300,000 loan, that’s max $3,000. Most lenders just charge a flat fee instead of itemizing a bunch of smaller costs.
Credit Report
Used to be like $50. Now it’s usually $80-$160 because the credit companies raised their prices. Thanks a lot, guys.
Discount Points
Want to lower your interest rate? You can buy points. One point costs 1% of your loan amount and usually drops your rate by about 0.25%. Whether this makes sense depends on how long you plan to keep the loan.
Third-Party Services
Title Insurance and Other Title Stuff
Title insurance protects you if someone shows up later claiming they own your house. But it’s not just insurance – you’ll also pay for title examination (they search public records), settlement fees, and document prep from the title company.
Recording Fees
County charges this to officially record that you now own the house.
Survey Fees
Makes sure the property boundaries are where they’re supposed to be.
Termite Inspection
Required in certain parts of the country. If you’re in one of those areas, you pay for it.
Well and Septic Testing
If the house has a private well or septic system, you’ll need to pay for testing.
One thing that catches people off guard – borrowers often don’t know they’ll need well or septic inspections because the listing doesn’t mention what type of utilities the house has. Or their agent doesn’t think to ask. We usually don’t find out until the VA appraisal comes back.
Important note: The VA says lenders can’t mark up third-party services. You only pay what these services actually cost. No padding allowed.
What You CANNOT Pay
This is where the VA really protects you. These fees are completely off-limits.
The 1% Rule
If your lender charges that flat 1% origination fee, they can’t tack on extra charges for stuff the VA considers overhead:
- Loan application fees
- Processing fees
- Underwriting fees
- Document prep fees
- Rate lock fees
- Notary fees
- Settlement fees
Always Forbidden
Whether your lender charges the flat fee or not, you never pay these:
Attorney Fees
Conventional loan borrowers often get stuck with these. Not you.
Prepayment Penalties
The VA won’t let lenders charge you for paying off your loan early.
Extra Inspections
Any additional appraisals or inspections your lender orders beyond the standard VA appraisal.
Real Estate Commissions and Brokerage Fees
This one changed recently. After the 2024 NAR lawsuit, the VA put out Circular 26-24-14 that temporarily allows veterans to pay real estate commissions and brokerage fees in areas where this has become common practice. Before that, sellers always paid these.
How the 1% Rule Actually Works
Your lender has two choices here.
They can charge a flat 1% fee that covers all their costs. Or they can itemize specific fees for different services. Most lenders I work with go with the flat fee because it’s simpler.
$200,000 loan = maximum $2,000 fee that covers everything from processing to underwriting to paperwork. Done.
If they itemize instead, they can charge reasonable amounts for specific services, but they have to justify and document every fee.
What I like about this system is you never get surprised by fees that pile up way beyond what you expected.
So Who Pays the Forbidden Fees?
Just because you can’t pay certain fees doesn’t mean they disappear:
Sellers can pay all your allowable closing costs plus up to 4% of the home’s value in concessions. This is often where the forbidden fees end up.
Lenders sometimes just eat these costs.
Real estate agents occasionally cover costs to keep deals together.
Before that circular I mentioned, veterans would often get charged real estate brokerage fees of a few hundred bucks – which was a non-allowable fee. Agents had to absorb it out of their commission.
Ways to Cut Your Costs
Ask for seller concessions. No limit on how much sellers can contribute toward your allowable closing costs. Plus they can kick in up to 4% in other concessions. On a $300,000 purchase, that’s potentially $12,000 in help.
Look into lender credits. Some lenders offer credits toward closing costs if you take a slightly higher interest rate. Sometimes this works out, sometimes it doesn’t. You have to run the math.
Finance the funding fee. Most people don’t pay this upfront – they just add it to the loan. You’ll pay interest on it, but it means less cash at closing.
Time your closing. Close later in the month and you pay fewer days of prepaid interest. Not huge savings, but hey.
Red Flags to Watch For
I’ve been doing this for over 20 years. I’ve seen lenders try to slip things past VA borrowers. Watch out for:
- Any “processing” or “underwriting” fees when they’re charging the 1% flat fee
- Application fees beyond the origination fee
- Attorney fees getting passed to you
- Rate lock fees or settlement charges
See any of these? Speak up right away. Your lender should remove them immediately.
Real Example
I helped a young Army service member buy her first house. She got all her closing costs covered through seller concessions and didn’t put any money down. She had to put earnest money in escrow, but after closing, all that earnest money came back to her.
The VA fee protections saved her thousands. Understanding what was negotiable helped us structure an offer that worked for everyone.
Questions I Get All the Time
Can I negotiate these closing costs?
Sort of. The funding fee is set by law. Appraisal fees are set by the VA. But you can negotiate with sellers to cover your costs, and some lenders offer credits or reduced fees.
What if my lender tries charging forbidden fees?
Call them out immediately. Lenders have to keep invoices for all allowable fees and give refunds if they overcharge. The VA doesn't mess around with this stuff.
Are VA closing costs higher than conventional loans?
Actually usually lower. Conventional loans might have similar total costs, but VA loans get rid of private mortgage insurance and restrict a bunch of fees that conventional borrowers pay.
Can I roll closing costs into my loan?
Only the funding fee. Everything else has to be paid at closing or covered by seller concessions.
Do I need cash for closing?
Depends on what you negotiate. If the seller covers all your allowable costs and you finance the funding fee, you might need very little cash besides earnest money and some prepaid stuff.
What’s the difference between allowable and non-allowable fees?
Allowable fees are costs you can pay - funding fee, appraisal, up to 1% in lender fees. Non-allowable fees are costs the VA won't let you pay - attorney fees, most processing charges, prepayment penalties.
How much can sellers contribute?
Sellers can pay 100% of your allowable closing costs with no limit, plus up to 4% of the home's value in additional concessions. This can really cut down your out-of-pocket expenses.
What You Should Do Next
Get pre-approved before you start looking at houses. Ask your lender for a breakdown of expected closing costs. Make sure they know VA guidelines and can explain which fees are allowed versus forbidden.
When you make an offer, work with your agent on seller concessions. Remember – sellers can pay all your allowable costs plus up to 4% in extras.
Don’t be afraid to ask questions. I’ve been doing this for decades and I still see veterans get surprised by costs they didn’t expect. Better to understand everything upfront.
Want to get a clear picture of your closing costs and explore your VA loan options? Let’s talk. I can review your specific situation and show you exactly what to expect. Every veteran’s situation is different, and I’ll help you understand all your options for keeping out-of-pocket costs low.
About The Author - Jason Skinrood
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