"VA Loan Closing Costs: Which Fees Can You Pay, and Who Picks Up the Rest?"

On a VA loan your closing costs sort into three groups. VA publishes a list of itemized fees you are allowed to pay, and alongside it you can pay the lender's flat charge and discount points. A second list names items the lender has to absorb out of that flat charge instead of billing you. A few charges have to come from somebody other than you.

I'm Jeff Moran, a mortgage broker in Bluffton, South Carolina, originating since 1996 and licensed in fifteen states, NMLS #483943, through C2 Financial Corporation. What decides a closing cost line on a VA file is which of those three groups the fee belongs to, and the lists are public. They are in VA's own lender handbook, so a fee in the wrong group is an error you can have corrected.

How does VA decide which closing costs land on the veteran?

The whole structure comes from one chapter. VA Pamphlet 26-7, the VA Lenders Handbook, sets out fees and charges in Chapter 8, and it splits the question across two topics. Topic 2, change date November 8, 2012, covers what a veteran can be charged. Topic 3, change date November 8, 2010, covers what a veteran cannot. Underneath both of them is the regulation, 38 CFR 36.4313, Charges and fees.

Topic 2 sets the ceiling in one sentence. You can pay reasonable and customary amounts for the itemized fees and charges VA designates, plus a flat charge by the lender of up to one percent of the loan amount, plus reasonable discount points. On a standard purchase, that is all of it.

The flat charge is where the second list comes from. Topic 2 says it "is intended to cover all of the lender's costs and services which are not reimbursable as 'itemized fees and charges.'" So when a cost is not on the itemized list, the lender does not get to add it as a separate line with your name on it. The lender has already been paid for it.

Topic 3 adds the third group, covering items "that cannot be paid by the veteran, but can be paid out of the lender's flat charge or by some party other than the veteran." So every charge on a VA settlement statement is either an allowable itemized fee, something the flat charge already covers, or somebody else's to pay.

Which closing costs can you pay on a VA loan?

Topic 2 lists them. You can pay reasonable and customary amounts for:

Charge	What it covers
Appraisal and compliance inspections	The VA appraiser's fee and VA compliance inspectors, plus a second appraisal when you are the one asking the lender to have the value looked at again.
Recording fees	Recording fees and recording taxes, and other charges tied to recordation.
Credit report	The credit report the lender pulls, or the fixed evaluation fee that stands in for it on an automated underwriting case.
Prepaid items	Your share of taxes and assessments for the current year, and the opening deposit into the tax and insurance account.
Hazard insurance	The required hazard insurance premium, including flood insurance where it is required.
Flood zone determination	What a third party charges to determine whether the home is in a special flood hazard area.
Survey	A survey, when the lender or you ask for one. On a condominium loan it needs VA's prior approval.
Title examination and title insurance	Both, plus an environmental protection lien endorsement when the lender decides one is needed.
Special mailing on a refinance	Express handling, when it saves you more in daily interest than it costs.
The VA funding fee	Unless you are exempt. How the VA funding fee works covers the exemptions.
MERS fee	The one-time fee for electronic tracking of the loan's ownership and servicing.
Other fees authorized by VA	A local variance, only where VA has authorized it for that jurisdiction.

Two limits ride along with that list. When a charge is for something a third party did, you can only be billed what the third party actually charged. VA's own example is a credit report that cost the lender thirty dollars: the lender may bill you thirty, and may not bill you thirty five on the theory that a five dollar handling charge is fair.

You also cannot be billed twice for the same work. When your lender reuses an appraisal, a survey or a flood determination somebody else already paid for, that fee should not appear on your side of the page.

Which fees have to come out of the lender's flat charge?

Topic 2 names them directly. These are the items the lender has to cover out of its own flat charge rather than billing you as itemized fees:

• The lender's own appraisals
• The lender's inspections, except on a construction loan
• Loan closing or settlement fees
• Document preparation fees
• Preparing loan papers, and conveyancing fees
• Attorney's services other than title work
• Photographs, amortization schedules, pass books, and membership or entrance fees
• Interest rate lock-in fees
• Postage, mailing, stationery, telephone and other overhead
• Escrow fees or charges, and notary fees
• Commitment or marketing fees of a secondary purchaser of the mortgage, and the preparation and recording of the assignment to that purchaser
• Trustee's fees or charges
• Loan application or processing fees
• The fee for preparing the truth-in-lending disclosure
• Fees charged by loan brokers, finders or other third parties, whether or not they are affiliated with the lender
• Tax service fees

When you set that list next to a Loan Estimate, a few familiar line items disappear. A processing fee, an underwriting fee, a document preparation fee and a tax service fee are ordinary charges on a conventional or FHA loan. On a VA loan the lender has already been paid for them through the flat charge.

What closing costs actually cover walks through the same block of the page on a loan with no such restriction. When you are holding quotes from two lenders, comparing two Loan Estimates line by line is where a charge that should have been inside the flat charge becomes visible.

Which charges have to be paid by somebody other than you?

Topic 3 handles this group, and it is short.

Attorney's fees charged by the lender. A lender may not charge you for attorney's fees. Reasonable fees for title examination work and title insurance are a different matter: those are allowable itemized charges, and you can pay them.

VA is not trying to keep you from having your own lawyer. You can hire an attorney yourself, and the handbook asks that the closing documents show clearly that the fee is your own arrangement rather than a lender charge. In an attorney-closing state that is worth raising early, because the title work and the lender's legal work can look like one bill if nobody separates them.

Prepayment penalties on somebody else's lien. On a VA refinance you cannot use loan proceeds to pay a prepayment penalty on an existing lien. On a purchase you cannot pay the penalty costs required to clear liens off the seller's property.

HUD or FHA inspection fees on proposed construction. Where a home was built under HUD supervision, inspections and re-inspections fall on the builder or the sponsor rather than on you.

What about the buyer's agent commission?

The handbook text and current VA policy do not line up here.

Topic 3 still carries 2010 language saying a veteran-purchaser may not be charged a brokerage fee or commission, and that paragraph has been overtaken. VA issued Circular 26-24-14 on June 11, 2024, updated by a change document dated August 5, 2024, and as of August 10, 2024 a veteran using the home loan benefit can pay reasonable and customary buyer-broker charges. VA's own page on the VA funding fee and loan closing costs is the plain-language version of the same material.

Three conditions come with it. The charge cannot be financed into the VA loan amount, so it has to be covered by funds you can document. The lender counts it against the liquid assets you have available for closing, which means it competes with your down payment and your reserves for the same dollars. And the amount you pay is shown in section H, Other, on the Closing Disclosure.

VA also said that when the seller pays the buyer-broker charge, it does not count against the seller concession limit. What a seller can and cannot contribute covers the concession rules the limit does apply to.

VA circulars carry rescission dates and get replaced, so please ask your lender to confirm the guidance in force on the day you write your offer.

What are the steps, in order?

1. The first pass is the itemized list. You can go down the closing cost block on your Loan Estimate against Topic 2's list, marking anything that does not appear on it.
2. The second pass is the flat charge. For each line you marked, the question is whether the flat charge is supposed to cover it. Processing, underwriting, document preparation and tax service fees are the four I see most often.
3. Please raise it while the Loan Estimate is still an estimate. A fee in the wrong group moves more easily three weeks out than at the closing table.
4. The buyer-broker question belongs in the offer conversation. You will want to settle who is paying that charge, and from which funds, before the contract is signed.
5. The same two passes are worth running again at the Closing Disclosure. Why a closing cost estimate moves between the first quote and the Closing Disclosure covers what is allowed to change along the way.

A worked illustration

Numbers below are made up to show the mechanism. They are not a quote, and they are not any lender's schedule.

Say a lender hands you an estimate on a VA purchase with a loan amount of $400,000:

Appraisal fee                       $650
Credit report                        $65
Title examination                   $450
Lender's title insurance            $900
Recording fees                      $135
Underwriting fee                  $1,095
Processing fee                      $695
Document preparation fee            $250
Tax service fee                      $78
Lender's flat charge              $4,000

Four of those lines belong to the flat charge rather than to you. Topic 2 names underwriting, processing, document preparation and tax service fees as items the lender covers out of the one percent, and the lender has already charged that one percent on the last line at $4,000.

Underwriting fee                  $1,095
Processing fee                      $695
Document preparation fee            $250
Tax service fee                      $78
────────────────────────────────────────
Charged twice                     $2,118

The corrected estimate keeps the appraisal, the credit report, the title work, the recording fees and the flat charge, and the $2,118 comes off. Nobody negotiated anything and nothing about the loan changed. Those four lines were in the wrong group from the start.

Where this goes wrong

A conventional fee sheet applied to a VA file. A lender uses one fee schedule for every loan, and the VA restrictions never get applied to it.

A fee that changed names. An administration fee or a funding review fee can be the same work as a processing fee wearing different words. What decides it is the work the lender actually did, and you can ask what that fee pays for.

A buyer-broker charge nobody planned for. It cannot be financed and it counts against your liquid assets, so finding out late changes what is left for the down payment.

What a VA loan is and how the benefit works covers eligibility, entitlement and occupancy, and using the benefit a second time while keeping the first home covers the entitlement math.

Where to start

You can price your own scenario without a credit pull and without giving me your name, then set it beside the estimate you already have. Choose the option that works best for you.

Common questions

What are VA non-allowable fees?

They are the closing cost items a veteran using a VA loan cannot be charged as separate itemized fees, and VA Pamphlet 26-7, Chapter 8, splits them into two kinds. Some, including loan processing, underwriting, document preparation, escrow fees, notary fees and tax service fees, have to be covered by the lender out of its flat charge of up to one percent of the loan amount. Others, including attorney's fees charged by the lender and prepayment penalties on existing liens, have to be paid by somebody other than the veteran.

Can a veteran be charged an underwriting or processing fee on a VA loan?

No, not as a separate line. Loan application and processing fees are named in Chapter 8, Topic 2, among the items the lender must cover out of its flat charge. When an underwriting or processing fee appears on a VA Loan Estimate alongside the flat charge, the same work is being billed twice, and the cheapest time to fix it is while the estimate is still an estimate.

What is the one percent flat charge on a VA loan?

It is the lender's origination charge, capped by VA at one percent of the loan amount on a standard purchase or refinance. VA's handbook says it "is intended to cover all of the lender's costs and services which are not reimbursable as 'itemized fees and charges.'" A lender can also charge reasonable discount points on top of it, and those two lines together are where lender pricing shows up on a VA file.

Can a veteran pay their own real estate agent on a VA purchase?

Yes, under the conditions VA set in Circular 26-24-14, effective August 10, 2024. The amount cannot be financed into the VA loan, the lender counts it against the liquid assets available for closing, and it is disclosed in section H, Other, on the Closing Disclosure. The 2010 language in Chapter 8, Topic 3, barring a brokerage fee has been overtaken by that circular, and circulars get replaced, so confirming the current guidance with your lender is worth the one question.

Can a veteran pay an attorney on a VA loan?

Not when the lender is charging for it. VA Pamphlet 26-7, Chapter 8, Topic 3, says a lender may not charge a veteran for attorney's fees, while reasonable fees for title examination work and title insurance are allowable. Separately, a veteran can hire an attorney directly for advice on the purchase and pay that fee, and the closing documents should show clearly that it is an independent arrangement rather than a lender charge.